Stocks slipped in light trading Monday as disappointing sales forecast from Wal-Mart Stores (WMT) weighed on market sentiment, offsetting a drop in oil prices after Iraq resumed from Iraq exports from both its northern and southern outlets after lengthy disruptions.

The Dow Jones industrial average (search) dropped 37.09 points, or 0.37 percent, to 10,073.05. The Standard & Poor's 500 Index (search) fell 2.67 points, or 0.24 percent, to 1,095.68. The technology-laced Nasdaq Composite Index (search) gained 0.68 points, or 0.04 percent, to 1,838.70.

Wal-Mart's warning about lower than expected August sales squelched the market's enthusiasm over falling oil prices. With its reach among consumers, Wal-Mart is seen as a barometer of an already struggling retail sector, and even the economy as a whole.

"I think you can make the case that Wal-Mart is related to oil, since oil prices have acted as a kind of tax on consumers that has restricted their spending," said Joseph Keating, chief investment officer at AmSouth Asset Management in Birmingham, Ala. "I think this plays into people's concerns that earnings will be impacted. But we're also seeing oil fall, and barring some sort of major supply disruption, I think they'll continue

Oil prices continued to hold the spotlight as crude eased for a second session after Iraq resumed exports from both its northern and southern outlets after lengthy disruptions.

October contracts for a barrel of light crude were quoted at $46.00, down 72 cents, on the New York Mercantile Exchange (search). With oil topping $49 per barrel last week, the downturn could encourage risk-tolerant investors to return to the market. However, very light volume meant most investors were sitting out Wall Street's traditional summer doldrums.

Record oil prices have generally been a drag on stocks as investors worry about the impact higher costs will have on corporate profits and consumer spending.

"Its one of those disconnect days when you had crude prices moving lower but the market not rallying," said John Caldwell, chief investment strategist at McDonald Financial Group, part of Key Corp.

"I think that the Wal-Mart announcement kept a negative overtone on trading for the day," he added. "There are concerns out there -- is the consumer going to slow so much that business confidence starts to erode?"

Wal-Mart lowered its August sales forecasts, citing lower back-to-school sales and lost business in Florida from Hurricane Charley. Sales at stores open at least a year — a standard for assessing a retailer's strength — are now expected to range from flat to 2 percent higher. Wal-Mart fell 85 cents to $53.80.

The retailer's outlook adjustment gave pessimists the chance to adjust their portfolios and take money out of the market, analysts said. Most investors, however, remained on the sidelines, and little movement in stocks was expected this week, given the Republican National Convention next week as well as the release of key employment data next Friday.

"Wal-Mart certainly has been the catalyst for people to reduce their exposure to stocks," said Hugh Johnson, chief investment officer at First Albany Corp. "Certainly, there are some worries out there that this will affect earnings in the third and fourth quarters. But we won't get a true reading on what's going to happen until after next week." 

FDX

Toys "R" Us Inc. (TOY) was up 43 cents at $16.04 after earning 28 cents per share for the quarter, thanks to one-time tax benefits. The company missed analysts' revenue forecasts by nearly $100 million, however, and posted an operating loss as well.

World Wrestling Entertainment Inc. (WWE) saw its first-quarter earnings more than double, thanks to strong home video and pay-per-view sales of its wrestling extravaganzas. WWE, which lowered its outlook for fiscal 2005, dropped 24 cents to $11.66.

Kmart Holding Corp. (KMRT) completed the sale of 18 stores to the Home Depot Inc. for $271 million, allowing the discount retailer to continue consolidating its stores while giving the home improvement retailer room to grow. Kmart slipped 10 cents to $76.45, while Home Depot slid 36 cents to $36.00.

Trading was light, with 1.0 billion shares changing hands on the New York Stock Exchange, below the 1.4 billion daily average for last year. About 1.2 billion shares were traded on Nasdaq, below the 1.69 billion daily average last year.

The Russell 2000 index of smaller companies was down 4.45, or 0.8 percent, at 543.47.

Overseas, Japan's Nikkei stock average rose 0.7 percent. In Europe, Britain's FTSE 100 closed up 0.8 percent, France's CAC-40 gained 1.5 percent for the session and Germany's DAX index surged 1.6 percent.

Reuters and the Associated Press contributed to this report.