Stocks slumped Wednesday as a bright outlook from McDonald's (MCD) was offset by a lower-than-expected retail sales report and a steep sell-off in the semiconductor sector triggered by a disappointing forecast from Intel.

The technology-laced  Nasdaq Composite Index (search) dropped 16.78 points, or 0.87 percent, to 1,914.88. The Dow Jones industrial average (search) fell 38.79 points, or 0.38 percent, to 10,208.80, while the Standard & Poor's 500 Index (search) slipped 3.67 points, or 0.33 percent, to 1,111.47, based on the latest available data.

Trading was active, with about 1.5 billion shares traded on the New York Stock Exchange and 2.1 billion shares traded on Nasdaq.

A string of profit warnings from semiconductor companies have worried the equity markets for more than a week, and the picture only looked bleaker after chip bellwether Intel released its results late Tuesday. The market's tone seemed to temporarily improve following upbeat announcements from McDonald's, Juniper Networks Inc. and Genzyme Corp., but the buying lacked conviction. Still, analysts remained optimistic.

"Despite all the worries, I think the earnings numbers will be spectacular," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. "Investors should not get discouraged because of the results of one company."

In addition to the negative sentiment surrounding earnings, sales at America's retailers fell 1.1 percent in June, the sharpest decline in 16 months, the Commerce Department (search) reported. Economists blamed bad weather, higher energy prices and slower payroll growth. The pullback followed a 1.4 percent rise in May.

Investors also kept a wary eye on oil prices, which surged in a flurry of buying after the price pierced the technically key $40 mark. NYMEX crude for August delivery jumped $1.53 to settle at $40.97 a barrel after hitting a session high of $41.05.

Many market participants had hoped second-quarter results would help stocks break out of the tight trading range they've been mired in, but a steady march of earnings disappointments and profit warnings have dampened investor enthusiasm. Even so, the news has been mostly good so far.

But for investors already distracted by inflation, Iraq and the upcoming election, anything less than stellar seems like an upset. The weaker retail numbers for June, and anxiety over whether they portend a broader trend of slowing job growth and dwindling consumer confidence, adds to the queasiness. So, while earnings look good and market watchers are generally bullish about the economy, there may be little to drive stocks higher in the weeks and months ahead.

"All these different uncertainties ... they're all keeping this market in a volatile trading range," said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons. "I think that's pretty normal. And I think we may see that continue for a couple more months."

Intel (INTC) sank $2.76, or 11 percent, to $23.38, after the chip-maker said 2004 profit margins would be lower than expected as it works through a buildup of inventory. The outlook led several brokerage firms to downgrade the company, even though it matched earnings estimates and reported a surge in revenue on robust demand for cell phone memory chips.

One bright spot was McDonald's Corp. (MCD), which climbed almost 5 percent to a session high of $27.99 and helped underpin the blue-chip Dow after it said its quarterly profit will beat expectations.

McDonald's Corp. said it will post a 27 percent increase in second-quarter earnings per share as it delivers its best second-quarter sales growth since 1987. At the close, McDonald's stock was up $1.11, or 4.2 percent, at $27.79.

Yum Brands Inc. (YUM), parent of the KFC, Pizza Hut and Taco Bell fast-food chains, gained after it reported higher quarterly earnings and raised its full-year profit outlook. It jumped $1.04, or 2.8 percent, to $37.95.

Harrah's Entertainment Inc. (HET) fell $1.00 to $50.98 on reports that it was close to an acquisition of rival Caesars Entertainment Inc. (CZR). The deal would make Harrah's the largest gambling company in the world. Caesars was up $2.08, or 15 percent, at $16.00

Juniper Networks (JNPR) added $2.59, or 12 percent, to $24.59, after the network-equipment maker said it expects third-quarter earnings and revenue to come in ahead of analysts' estimates.

Genzyme Corp. (GNZM) gained $5.50, or 12 percent, to $50.00, after the pharmaceutical company beat earnings estimates and reported a 58 percent rise in second-quarter revenues and projected higher annual sales.

The Russell 2000 index, which tracks smaller company stocks, ended the day down 2.95, or 0.5 percent, at 559.74.

Overseas, Japan's Nikkei stock average finished 2.2 percent lower Wednesday. In Europe, France's CAC-40 lost 0.2 percent, Britain's FTSE 100 added 0.3 percent and Germany's DAX index closed down 0.1 percent.

Reuters and the Associated Press contributed to this report.