Stocks fell Thursday as fears over fighting in Iraq prompted investors, disappointed over Wal-Mart Stores' (WMT) profit prospects and solid but unexciting results from General Electric (GE), to sell stocks before the long holiday weekend.

After a seesaw session, the Dow Jones industrial average (search) ended down 38.12 points, or 0.36 percent, at 10,442.03. The Standard & Poor's 500 Index (search) closed down 1.20 points, or 0.11 percent, at 1,139.33. The technology-focused Nasdaq Composite Index (search) rose 2.62 points, or 0.13 percent, to 2,052.86.

For the week, the Dow fell 0.3 percent, while the S&P 500 and Nasdaq each shed about 0.2 percent. Each of the major indexes rose last week.

Trading was very light, with 1.2 billion shares changing hands on the New York Stock Exchange, below the 1.4 billion daily average for last year. About 1.7 billion shares were traded on Nasdaq, below the 1.8 billion daily average last year.

Even technology stocks dipped in late afternoon trading, retreating from earlier gains driven by a jump in earnings from Yahoo Inc. and a bullish revenue forecast by Dell Inc.

"We started on a very positive note, but with the holiday weekend, there is a tendency to take a little money off the table," said Peter Dunay, chief market strategist at brokerage Wall Street Access.

On the eve of the anniversary of Baghdad's capture, U.S.-led forces were locked in open urban warfare in Iraq's central Sunni town of Falluja, the Shi'ite shrine city of Kerbala and Abu Ghraib on the western outskirts of the capital, witnesses said.

In addition, a number of South Koreans, Japanese and one Briton were involved in separate kidnapping incidents.

"The more this escalates, the worse this will be," said Dunay. "It is in the back of investors' minds."

Thin trading exaggerated the market's moves, with Wall Street modestly staffed through the Passover and Easter holidays. U.S. financial markets will be closed on Friday in observance of Good Friday.

The first round of earnings should have been good news for investors who have been concerned about Iraq and the rapid rise in share prices over the past two weeks. General Electric was up only a penny at $31.41, however, as investors remained cautious.

"We have pretty good earnings out of General Electric, and the retailers are all reporting pretty strong sales through March. Barring any new terrorist attacks, it's very hard, from my perspective, to find anything to worry about," said Lincoln Anderson, chief investment officer at LPL Financial Services. "But for whatever reason, a lot of people still remain skeptical. I'm not at all."

But at least one analyst cautioned that it was too early to make any big moves before more earnings come out.

"We are very early into earnings season, and with Iraq and everything else, we're kind of in a wait-and-see mode," said Stephen Massocca, president of Pacific Growth Equities. "One number from Yahoo does not bake a cake, so to speak. We'll need to see a lot more earnings before the market picks a direction."

Wal-Mart (WMT)was the biggest drag on the Dow and the S&P 500 as the world's biggest retailer dashed hopes it would raise its profit forecast after some of its peers raised theirs. Its shares fell $1.29, or 2.2 percent, to $56.69.

Among the companies positively updating their earnings outlooks, Dell Inc. (DELL)was up 81 cents at $35.63, Sharper Image Corp. gained $1.91 to $32.57 and J.C. Penney Co. Inc. rose 7 cents to $34.64.

Penney, like many other major retailers, reported a fourth straight month of healthy sales. But the market's pessimistic mood helped send a number of retail stocks lower. Target Corp. was down 64 cents to $44.17, while Gap Inc. was off 52 cents at $21.81.

Yahoo (YHOO) surged $7.78, or 16 percent, to $56.13 after the Internet company beat analysts' expectations by 3 cents per share and recorded a quarterly profit that surpassed its annual earnings during the dot-com boom. The company also announced a 2-for-1 stock split.

Spurred by strong sales of its cancer treatment Avastin, biotechnology company Genentech Inc. (DNA) beat Wall Street estimates by 6 cents per share for the first quarter. Genentech jumped $3.55 to $112.00.

Thursday's session marked the first day of trading under the new Dow Jones industrial average composition. AIG Inc. (AIG), Pfizer Inc. (PFE) and Verizon Communications (VZ) replaced Eastman Kodak Co. (EK), International Paper Co. (IP) and AT&T Corp. (T) in the index.

The new Dow components were expected to fare well, with the departing stocks struggled as index-based funds adjusted their portfolios to accommodate the change, announced last week. However, the afternoon downturn took its toll. AIG gained 2 cents to $76.27, Pfizer dropped 7 cents to $35.60 and Verizon was unchanged at $37.31.

Of the departing stocks, AT&T Corp. slipped 29 cents to $19.23, International Paper fell 39 cents to $42.01 and Kodak dropped 5 cents to $25.44.

In the latest economic data, Americans lining up for first-time unemployment benefits totaled 328,000 in the week ended April 3, down from 342,000 in the prior week. Weekly claims were the lowest level since January 2001 and below economists' expectations for 340,000 claims.

The Russell 2000 index of smaller companies was down 3.75, or 0.6 percent, at 597.89.

Overseas, Japan's Nikkei stock average gained 0.6 percent. Britain's FTSE 100 closed up 0.5 percent, France's CAC-40 rose 0.2 percent and Germany's DAX index climbed 0.3 percent.

Reuters and the Associated Press contributed to this report.