The Dow Jones industrial average slipped 9.22 points, or 0.07 percent, to end at 12,567.93. The Standard & Poor's 500 Index declined 4.25 points, or 0.30 percent, to close at 1,426.37. The Nasdaq Composite Index dropped 36.21 points, or 1.46 percent, to finish at 2,443.21.
After the closing bell, shares of IBM (IBM), the world's largest technology services company, fell 2 percent after the company posted quarterly results.
Adding to Wall Street's somber mood, Federal Reserve Chairman Ben Bernanke told a congressional committee that failure to act on budgetary strains related to an aging U.S. population could result in serious economic harm.
"All of these things rolled up together, people are starting to run for the hills," said Ray Rund, head of research at Shaker Investments in Cleveland.
Stronger housing starts, benign inflation data and a report showing better-than-expected business activity in the Mid-Atlantic region tempered views on the economy and helped keep the broader indexes from declining as sharply as the Nasdaq.
The stock of Apple, which last week unveiled its multimedia iPhone, dropped 6.2 percent, or $5.88, to $89.07, its sharpest drop since February. Apple was the biggest drag on both the Nasdaq and the S&P 500.
Lam, which supplies tools for making microchips, delivered a lower-than-expected profit forecast late Wednesday, driving its shares down nearly 15 percent, or $7.91, to $46.22 on the Nasdaq.
After the bell, IBM's stock slid 2 percent to $97.45 in electronic composite trading. During the regular session, IBM fell 0.6 percent, or 57 cents, to $99.45 on the New York Stock Exchange.
Chip maker Intel Corp. declined for a second day, falling 1.9 percent, or 39 cents, to $20.65 on a disappointing profit margin forecast.
The Philadelphia Semiconductor Index was down 3.9 percent.
Crude oil futures fell to a session low of $49.90 a barrel after the U.S. government reported a surprisingly large rise in crude stockpiles to 6.8 million barrels in the latest week. This was the lowest front-month oil price since May 25, 2005.
NYMEX February crude fell $1.76, or 3.4 percent, to settle at $50.48 a barrel.
Exxon Mobil's stock dropped 0.7 percent, or 50 cents, to $71.96. ConocoPhillips shares fell 1.5 percent, or 94 cents, to $62.61.
Earlier, government data showed the U.S. Consumer Price Index for December was in line with Wall Street's expectations. A separate government report said housing starts climbed 4.5 percent in December, defying economists' expectations for a fall. ID:nN18340681
At midday, the Philadelphia Federal Reserve Bank said its business activity index rose to 8.3 in January — more than twice the reading of 3 that was forecast by economists polled by Reuters.
Bernanke urged Congress to fix budget problems such as the cost of Social Security and Medicare, which are related to the aging U.S. population.
"We are experiencing what seems likely to be the calm before the storm," he told the Senate Budget Committee.
Trading was moderate on the NYSE, with about 1.62 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.51 billion shares traded, below last year's daily average of 2.02 billion.
Declining stocks outnumbered advancing ones by a ratio of about 8 to 5 on the NYSE and by more than 5 to 2 on Nasdaq.