U.S. stocks fell for the third straight day as anxiety over war and terrorism deepened with the arrests of three people at London airports.

The market had a late-day blip upward on bargain hunting that lifted the Dow Jones industrial average from a deficit of 129 points. But the major indexes still finished with losses, an expected outcome amid the selling that has dominated Wall Street for weeks.

"War worries continue to be the overwhelming deterrent for investors," said Alan Ackerman, executive vice president at Fahnestock & Co.

The Dow closed down 8.30, or 0.1 percent, at 7749.87, having shed 161.94 in the previous two sessions. Today's decline was the Dow's seventh in eight sessions.

The broader market fell but also managed to stave off bigger losses. The Nasdaq composite index slipped 1.53, or 0.1 percent, to 1277.44, recovering from an earlier deficit of 17.18. The Standard & Poor's 500-stock index declined 1.31, or 0.2 percent, to 817.37, having lost as much as 12.39 earlier.

"There is still absolutely no reason to put money to work, to buy something," said Tony Cecin, head of institutional trading at US Bancorp Piper Jaffray in Minneapolis. "It is what I would call a buyers' strike. Until people get more clarity [on Iraq], there's no reason not to be on strike."

War jitters have been the driving force behind the market's slide in 2003, costing the Dow nearly 1,100 points since Jan. 14, when the blue chips stood at 8842.62, their high for 2003.

So far this year, the Dow and S&P 500 have each dropped 7.1 percent, while the Nasdaq has lost 4.4 percent.

Fears of more terrorism have also been weighing heavy on Wall Street. Investors were on edge after British police arrested a man at London's Gatwick Airport with a grenade in his luggage, and two other suspects were taken into custody near Heathrow Airport, where troops have been on patrol after a terrorist threat.

On the economic front, the Commerce Department reported that retail sales fell by 0.9 percent in January, a larger drop than the 0.6 percent decline analysts anticipated.

But excluding automobile sales, which can vary widely from month to month, retail sales rose by 1.3 percent, the biggest gain since September 2000 and stronger than the 0.5 percent increase economists were expecting.

Still, investors are afraid that a war with Iraq might prompt consumers to further curtail their spending, which accounts for two-thirds of the economy.

Retailing and auto stocks traded lower. Pacific Sunwear dropped 34 cents, to $17.08; Gap fell 50 cents, to $14.68; and Limited declined 20 cents, to $11.30, after UBS Warburg downgraded the retailers to "neutral" from "buy."

General Motors fell 37 cents, to $33.65, and Ford declined 31 cents, to $8.44.

Among the gainers, toymaker Hasbro advanced 51 cents, to $11.80, on fourth-quarter earnings that beat analysts' expectations by 4 cents a share.

And, Dell Computer rose 31 cents, to $23.25, ahead of quarterly earnings due out later. After the market closed, the computer maker reported profits that met Wall Street's expectations, and its shares rose 70 cents in the extended-hours trading session.

Other Indicators

* The New York Stock Exchange composite index rose 3.54, to 4653.25; the American Stock Exchange index rose 2.33, to 808.18; and the Russell 2000 index of smaller-company stocks fell 0.61, to 354.77.

* Declining issues outnumbered advancing ones by 13 to 9 on the NYSE and the Nasdaq Stock Market. NYSE trading volume rose to 1.45 billion shares, from 1.24 billion on Wednesday, and Nasdaq volume totaled 1.29 billion, up from 1.18 billion.

* The price of the Treasury's 10-year note rose $5.00 per $1,000 invested, and its yield fell to 3.87 percent, from 3.91 on Wednesday.

* The dollar fell against the Japanese yen and the euro. In late New York trading, a dollar bought 120.60 yen, down from 121.31 late Wednesday, and a euro bought $1.0834, up from $1.0723.

* Light, sweet crude oil for March delivery settled at $36.36, up 59 cents, on the New York Mercantile Exchange.

* Gold for current delivery rose to $357.40 a troy ounce, from $352.60 on Wednesday, on the New York Mercantile Exchange's Commodity Exchange.