Blue chips fell Thursday worries about rising oil prices and somewhat disappointing earnings from companies like Caterpillar offset more upbeat profit reports and a rumored takeover bid for AT&T.

The Dow Jones industrial average (search) ended down 31.19 points, or 0.30 percent, at 10,467.40. The Standard & Poor's 500 Index (search) was up 0.48 points, or 0.04 percent, at 1,174.55. The Nasdaq Composite Index (search) was up 1.06 points, or 0.05 percent, at 2,047.15.

The lackluster close dampened a two-day rally — which saw stocks bounce off 2005 lows hit on Monday. Earnings were the principal focus, on the heaviest day so far this quarter for corporate reports.

"Broadly it's been a challenging quarter," said Jack Caffrey, equity strategist at JP Morgan Private Bank. "For the most part, numbers have been basically in line. But the challenge is that companies are being somewhat muted with respect to their guidance.

"Instead of in-line reports with good outlooks, we're getting in-line reports with somewhat muted outlooks. It's good, but not quite as as good as some people had been hoping for," Caffrey said.

Gains in Cisco Systems Inc. (CSCO) helped the tech-heavy Nasdaq nudge higher. Cisco, a Nasdaq and S&P 500 component, rose nearly 3 percent, or 49 cents to $18.18, after Lehman Brothers forecast mostly strong first-quarter results. The company, the biggest maker of gear to direct Internet traffic, reports results in early February.

Also helping the S&P 500 was Colgate-Palmolive Co. (CL), up 5.6 percent, or $2.81 to $52.69, after J.P. Morgan raised its investment rating on the consumer products company to "overweight" from "neutral".

After the closing bell, Microsoft Corp. (MSFT), the world's largest software maker, said its quarterly profit and revenue rose on stronger demand for personal computers as well as healthy sales in its video games business.

Microsoft rose just over 1 percent to $26.42 on the Inet electronic brokerage system. Its shares closed the ordinary trading session up 10 cents at $26.11.

Dow component Caterpillar Inc. (CAT) fell nearly 5 percent to $86.90, and dragged down other construction equipment stocks, after it missed Wall Street estimates with its quarterly earnings.

"The past couple of days have seen some improvement, but it's been very tepid, almost a stealth rally," said Ken Tower, chief market strategist for Schwab's CyberTrader. "With the downtrend we've been in this month, I don't think anybody's feeling any urgency to put money to work here."

Meanwhile, a rise in oil caused renewed concerns about corporate profit margins and consumer spending. U.S. light crude settled 6 cents higher at $48.84 a barrel on the New York Mercantile Exchange (search) as traders braced themselves for potential disruptions ahead of Iraq's elections on Jan. 30 and worried supply cut from OPEC ministers' meeting this weekend.

Investors braced for potential disruptions ahead of Iraq's elections on Sunday and ahead of next week's meetings of the Federal Reserve.

"I worry with all the stuff going on this weekend," said Neil Massa, senior trader at John Hancock Funds. "Do people want to be long over the weekend ahead of the Iraq elections, the OPEC meeting and the Fed? — that's debatable," he said.

A mix of economic data — lower-than-expected unemployment and a somewhat disappointing report on factory orders — did not provide a boost to keep the markets in positive territory for a third straight session.The Labor Department (search) said first-time jobless claims rose by 7,000 to 325,000 last week, less than the 333,000 claims economists had expected. That bolstered Wall Street's hopes that next week's monthly job creation report would show decent job growth.

Orders for durable goods — products designed to last at least three years — rose 0.6 percent in December, a decline from the 1.8 percent gain in the previous month and less than the 0.9 percent Wall Street had expected. Sharp drops in aircraft and defense orders kept the gains minimal.

Shares of AT&T (T) jumped $1.15 to $19.60 on media reports that the company could be acquired by former Baby Bell SBC Communications Inc. (SBC) in a deal valued at at least $15 billion. SBC lost 48 cents to $24.10 on the news.

Dow component Verizon Communciations Inc. (VZ) swung to a profit in the fourth quarter after a loss a year ago, posting a 6 percent gain in revenues and matching Wall Street's profit expectations. Verizon nonetheless shed 65 cents to $35.87.

Altria Group Inc. (MO), maker of Marlboro cigarettes and majority owner of Kraft Foods Inc. — rose 79 cents to $62.63 a day after it said that excluding one-time items, earnings from continuing operations beat estimates.

Amgen Inc. (AMGN), the world's largest biotechnology company, fell 3 percent, or $1.98 to $61.58 after it said that excluding one-time items, its fourth-quarter missed estimates.

United Parcel Service Inc. (UPS), the world's largest package delivery company, slid 2 percent to $74.01 after it said quarterly net earnings missed its forecast.

Nokia Corp. (NOK) was up 89 cents at $15.22 despite seeing its quarterly profits fall 13 percent. The cellular phone maker said that revenues rose 3 percent and that the company had regained market share. Nokia surpassed analysts' forecasts by 7 cents per share.

Sears, Roebuck and Co. (S) gained 18 cents to $50.08 after posting profits that beat expectations by 10 cents per share. The company said lower costs helped overcome weak holiday sales. Kmart Holding Corp., the company's proposed merger partner, climbed $2.53 to $92.86 on the news.

Overall, trading was active, with 1.6 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 2.1 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.

Advancers outnumbered decliners on the New York Stock Exchange by 9-to-7. On Nasdaq, decliners outnumbered by 8-to-7.

The Russell 2000 index of smaller companies was up 0.33, or 0.05 percent, at 616.90.

Overseas, Japan's Nikkei stock average fell 0.31 percent. In Europe, Britain's FTSE 100 closed up 0.13 percent, France's CAC-40 gained 0.3 percent for the session, and Germany's DAX index rose 0.05 percent.

Reuters and the Associated Press contributed to this report.