Stocks fell Tuesday as a series of profit warnings and a spike in the oil price to nearly $40 a barrel heightened investors' worries over the economy and fueled a selloff.

The Dow Jones industrial average (search) dropped 63.49 points, or 0.62 percent, to 10,219.34, its lowest close since June 3. The Standard & Poor's 500 Index (search) dropped 9.19 points, or 0.82 percent, to 1,116.19, its lowest close since May 26. The technology-laced Nasdaq Composite Index (search) dropped 43.23 points, or 2.15 percent, to 1,963.43, also the lowest since June 3.

A lower earnings forecast for tech bellwether Intel Corp. and a disappointing outlook from chip maker Conexant Systems Inc. triggered selling throughout the technology sector. More U.S. companies warned that quarterly profits would miss Wall Street estimates than beat them last week, marking the worst weekly performance of preannouncements in more than two years, according to Reuters Estimates.

U.S. light crude (search) rose $1.19 to $39.58 a barrel on the New York Mercantile Exchange, pushed higher amid concerns about possible disruptions to Russian and Nigerian supplies. Crude oil is a component of almost every sector of the economy, including manufacturing and transport, and higher oil prices immediately erode corporate profits.

"Oil, which looked like it was stabilizing, is now going up again, and that worries everyone," said Edgar Peters, chief investment officer at PanAgora Asset Management. "There were a number of warnings coming out as well, which feeds everyone's fears that earnings growth is slowing."

Investors were still nervous after Friday's lower-than-expected job creation figures, which led to concerns that the fast pace of economic growth was slowing. And with little economic data due this week — and the bulk of second-quarter earnings still at least a week away — the uncertainty quickly translated into pessimism.

"My feeling is that people are really searching for some kind of a thesis for the second half, trying to figure out what will move stock prices, and we're not coming to any conclusions on that," said Brian Pears, head equity trader at Victory Capital Management in Cleveland. "The feeling is that we're one major piece of negative news away from more significant selling."

A report on the vast U.S. services sector of the economy contributed to the downbeat mood as it fell short of expectations. The Institute for Supply Management's (search) monthly nonmanufacturing index fell to 59.9 in June from 65.2 in May. Wall Street analysts had been looking for a dip to 63.0.

"Concerns are starting to mount that the economy does not really have as big a head a steam as everyone had hoped," Paul Cherney, chief market analyst at Standard & Poor's, said.

Investors were keeping a close eye on the race for the U.S. presidency after presumptive Democratic nominee John Kerry chose former political rival North Carolina Sen. John Edwards as his running mate.

The uncertainty surrounding the Nov. 2 election has Wall Street on edge, said David Hagerty, head of equity trading at Commerzbank Securities. "It's already a tight race, and when you add Edwards in there, a strong candidate, we're basically looking at a horse race right up to the election."

Dow component Intel (INTC) dropped 22 cents to $26.11 after Lehman Brothers reduced its earnings forecast for the chip manufacturer due to lower back-to-school demand for personal computers.

Conexant (CNXT), a small, wireless chip maker, said its third-quarter sales and earnings would fall below expectations due to weak sales. Conexant slid $1.77, or 43 percent, to $2.31.

"The thing with semiconductors is just going to repeat itself throughout the market," said Bill Groenveld, head trader for vFinance Investments. "If somebody has more seller interest on a given piece of news, they're going to pull out the negatives. If there's more buyer interest, you'll see the silver lining. Right now, there's just no volume and very little buyer interest."

Aircraft manufacturer Boeing Co. (BA) was upgraded from "underperform" to "market perform" by Wachovia Securities because of steady business growth. Boeing nonetheless fell 21 cents to $49.31.

Acuity Brands Inc. (AYI) reported an 18 percent rise in third-quarter earnings Tuesday and reiterated the company's full-year outlook, but the lighting and specialty products company missed expectations by 2 cents per share. Acuity fell 52 cents to $25.45.

Veritas Software Corp. (VRTS) plunged $9.55, or 36 percent, to $17.00 after it lowered its second-quarter earnings and revenue outlook, citing weakness in corporate software sales.

Drug store chain Rite Aid Corp. (RAD) said its same-store sales rose 2.4 percent, following a strong trend in the pharmacy sector. Rite Aid slipped 17 cents to $4.91.

Trading was moderate, with about 1.3 billion shares traded on the New York Stock Exchange and about 1.9 billion shares traded on Nasdaq.

The Russell 2000 index of smaller companies was down 10.31, or 1.8 percent, at 572.41.

Overseas, Japan's Nikkei stock average fell 0.6 percent. In Europe, Britain's FTSE 100 closed down 0.7 percent, France's CAC-40 dropped 0.8 percent for the session, and Germany's DAX index lost 1.3 percent.

Reuters and the Associated Press contributed to this report.