Stocks fell slghtly Thursday after a key report showed higher-than-expected inflation and more deadly violence in Iraq weighed on investor sentiment.

The Dow Jones industrial average (searcheased 2.06 points, or 0.02 percent, to 10,377.52, while the broader S&P 500 Index (searchslipped 1.51 points, or 0.13 percent, to 1,132.05,. The Nasdaq Composite Index (searchdeclined 14.56 points, or 0.73 percent, to 1,983.67.

Network equipment maker Cisco Systems Inc. (CSCO) pressured the technology-laden Nasdaq, dragging down the Standard & Poor's Communications Equipment Index (search) nearly 2 percent, making it the S&P 500's biggest percentage losing sector.

"The market's in a malaise," said Larry Wachtel, market analyst at Wachovia Securities, noting the low level of trading volume. "The crowd is not dumping, but the crowd is not buying, either."

Anxiety over Iraq and interest rates has kept many investors on the sidelines for the past few weeks, and the latest data did little to lure buyers. Analysts say that until the end of the month, when the Federal Reserve (search) takes action on rates and U.S.-led forces return sovereignty to Iraqis, there will be little to drive the market forward.

The measure of prices paid to farms, factories and refineries shot up 0.8 percent last month, the Labor Department (search) said. It was the biggest jump since March 2003, as prices received for food and energy shot up. The core producer price index, which strips out the volatile food and energy costs, gained a larger-than-expected 0.3 percent.

Economists polled by Reuters had expected a 0.6 percent rise in overall producer prices with the core index up 0.2 percent.

"The (producer price index) came in way above expectations. It caused some concerns about the potential for a 50-basis- point ratchet" on June 30, the second day of the Fed's two-day meeting, "rather than a 25-basis-point rise," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida.

The Federal Reserve's policy-setting committee meets June 29-30, and is widely expected to raise its fed funds rate, or the rate for overnight bank loans, from its current 1958 low of 1 percent, in an effort to curb budding inflation.

Fed chief Alan Greenspan (search) has said rates would move up at a "measured" pace, but a pickup in inflation has heightened worries the central bank may need to move more aggressively.

In another report, the Conference Board, a private business group, said its index of leading economic indicators rose 0.5 percent in May to 116.5, suggesting the U.S. economy's momentum will likely continue in the coming months.

Crude oil for July delivery ended 3 percent higher, up $1.14 at $38.46 a barrel, on the New York Mercantile Exchange (search), amid uncertainty over when Iraq can restore exports, which were shut down earlier this week due to attacks on pipelines.

U.S. Treasury bond prices rose, sending the yield of the benchmark 10-year note down to 4.69 percent from 4.72 percent late Wednesday.

"On one hand, we have a bond market that's doing well, and long-term rates are going down. But on the other hand, oil prices are going up. That's why the stock market is stuck," said Hugh Johnson, chief investment officer at First Albany Corp.

News of two bombings in Iraq Thursday also weighed on sentiment. A suicide bomber blew up his car at an army recruiting base in Baghdad, killing 35 people and wounding 138 in Iraq's deadliest single bombing since a suicide attack on the same target killed 47 in February. A car bomb later killed six paramilitary civil defense guards north of the Iraqi capital. NYMEX July gasoline futures settled 3.6 percent higher, up 4.09 cents at $1.1871 a gallon.

Topping the NYSE's most-active issues was Nortel Networks (NT), up 31 cents, or 7.6 percent, at $4.40, while Cisco led the Nasdaq's most actives. Cisco ended off 52 cents, or 2.2 percent, at $23.36.

Cisco's CEO John Chambers said on Thursday that the world's largest Internet router maker would relish teaming up with Nortel Networks, North America's biggest telecom equipment supplier.

Among other active Nasdaq names, Microsoft Corp. (MSFT) rose 44.9 cents, or 1.6 percent, to $27.769. Intel Corp. eased 49 cents, or 1.7 percent, to $27.63. Microsoft and Intel, also among the 30 stocks that make up the Dow, had opposite effects on the blue-chip average. Microsoft was the Dow's biggest percentage gainer and helped limit its losses, while Intel weighed on the Dow.

In earnings news, Accenture Ltd. shares rose, after it reported preliminary quarterly earnings sharply above analysts' estimates, driven by strong demand for outsourcing and improvements in its consulting business.

Shares of Accenture (ACN), one of the world's biggest consulting companies, shot up $1.48, or 5.9 percent, to $26.79.

Among the decliners, circuit-board maker Jabil Circuit Inc. (JABL) Jabil Circuit Inc. sank $3.56, or 13 percent, to $24.49, after predicting earnings for the quarter and the year would come in below analyst expectations.

Motor home manufacturer Winnebago Industries Inc. (WGO) added $4.85, or 15 percent, to $36.85, after reporting earnings that surged past Wall Street forecasts.

Ford Motor Co. (F) closed a penny higher at $15.64 after the company raised its earnings forecast for the quarter and the year. Ford cited strong performance at its financial services unit, which is seeing fewer credit losses than expected.

Trading was active, with about 1.3 billion shares changing hands on the New York Stock Exchange, below the 1.4 billion daily average for last year. About 1.45 billion shares were traded on Nasdaq, below last year's 1.69 billion daily average.

The Russell 2000 index, which tracks smaller company stocks, was down 0.50, or 0.1 percent, at 569.57.

Overseas, Japan's Nikkei stock average finished 0.3 percent lower Thursday. In Europe, France's CAC-40 rose 0.1 percent, Britain's FTSE 100 added 0.05 percent and Germany's DAX index lost 0.4 percent.

Reuters and the Associated Press contributed to this report.