Stocks fell Thursday as investors, digesting an unexpected drop in durable goods orders, paused after two days of gains amid renewed worries over violence in Iraq and Turkey.

The Dow Jones industrial average (search) fell 35.76 points, or 0.34 percent, to 10,443.81. The Standard & Poor's 500 Index (search) dropped 3.44 points, or 0.3 percent, to 1,140.62, and the technology-laced Nasdaq Composite Index (search) fell 5.41 points, or 0.27 percent, to 2,015.57.

Many investors remain reluctant to make big moves with a string of key political and economic events still looming, and traders were especially cautious, given the market's strong gains in the previous session, analysts said.

"There isn't enough good news right now to really get people involved," said Rick Meckler, president of investment firm LibertyView Asset Management. "Most professionals and individuals are just holding, looking for some clarity on the transition in Iraq, looking for some clarity on the presidential election, and, perhaps more importantly, looking for some clarity from the Fed on rate rises."

A record reading on home sales was encouraging to analysts, who say it suggests continued economic strength. But violence in Iraq and a pair of bomb blasts in Turkey, including one near a hotel where President Bush is expected to stay ahead of Monday's NATO summit, caused some jitters.

"The indexes are being influenced in the near term by things that are beyond the normal course of investment events," said Kevin Caron, market strategist with Ryan, Beck & Co. "The bombing in Istanbul certainly raises more risk concern, and that could be what's keeping us flat today."

The markets have been in a torpor all month ahead of a pivotal Federal Reserve (search) meeting on interest rates and the hand-over of sovereignty in Iraq next week.

Adding to investors' uncertainty, the Commerce Department (search) reported that orders for costly manufactured goods slipped for a second straight month — a sign that the economic recovery, while strong, remains somewhat uneven. For those fearing inflation and the accompanying interest rate hikes, however, the report could be seen as good news, since demand for big-ticket items could be flagging.

Also Thursday, the number of new people signing up for unemployment benefits rose last week by a seasonally adjusted 13,000 to 349,000, the Labor Department (search) said. Neither this, or the durable goods number, matched expectations.

"In this environment of low volumes, economic data can have big impact," said Arnie Holzer, senior investment strategist, Deutsche Asset Management Americas. "And these numbers were not exactly what the market was looking for."

AT&T (T) lost $1.60 to $14.81 after the telecommunications company cut its revenue forecast for the year to a point below its own expectations and that of Wall Street, largely due to a regulatory decision that forced it to pull service from seven states. Several brokerage firms lowered their ratings on the stock.

Micron Technology (MU) was down 1 cent at $14.45, despite reporting better-than-expected earnings Wednesday on improved sales in the international computer chip market. Although demand appears to be up, some analysts saw the results as a mixed bag.

Shares of Microsoft Corp. (MSFT) added 9 cents to $28.39 after Bank of America upgraded its rating on the software titan, largely on speculation about what it will do with its huge reserve of cash. Business software maker Oracle (ORCL) rose 3 percent, or 35 cents, to $11.50.

Casino stocks moved higher after negotiators agreed in principle to a deal that would bring thousands of slot machines to Pennsylvania as a way to raise money to reduce property taxes in the state. International Game Tech (IGT) added $1.44 to $36.70.

Trading was moderate, with about 1.4 billion shares traded on the New York Stock Exchange, and about 1.7 billion shares traded on Nasdaq.

The Russell 2000 index, which tracks smaller company stocks, was down 1.10, or 0.2 percent, at 579.05.

Overseas, Japan's Nikkei stock average climbed 1.4 percent. In Europe, France's CAC-40 rose 1 percent, Britain's FTSE 100 added 0.4 percent and Germany's DAX index jumped 1.6 percent.

Reuters and the Associated Press contributed to this report.