The Dow’s four-day winning streak came to an end on Wednesday as the markets worried about a pair of weak economic reports that tempered the recovery hopes that have fueled this summer's huge rally. 

Today’s Markets

The Dow Jones Industrial Average fell 39.22 points, or 0.42%, to 9280.97, the Standard & Poor's 500 slid 2.95 points, or 0.29%, to 1002.70 and the Nasdaq Composite lost 18.26 points, or 0.91%, to 1993.05. The consumer-friendly FOX 50 climbed 1.74 points, or 0.24%, to 732.32.

Underscoring just how strong the markets have been over the past month, Wednesday's modest 39-point slide on the Dow was its steepest point decline since July 7. The markets nearly ended in the green as a late-day comeback effort erased most of the index's triple-digit loss. 

The pullback comes as expectations that the U.S. economy will rebound during the second half of 2009 have pushed the markets some 50% off their March lows. Those expectations were dealt a blow by Wednesday's, data, which showed the service sector contracted for the 10th consecutive month and the U.S. lost more private sector jobs than expected in July.

"Macroeconomic indicators such as these are going to have to show improvement in the second half of the year in order to reinforce the idea that the economy is righting itself in a sustainable fashion," Dan Greenhaus, equity analyst at Miller Tabak, wrote in a note.

The Dow, which closed on Tuesday at its highest level since early November, was led lower by Caterpillar (CAT) and Proctor & Gamble (PG), which reported earnings before the open. The best-performing stocks on the benchmark index were its financial components, including Bank of America (BAC) and American Express (AXP).

Ahead of the Cisco's (CSCO) widely-anticipated earnings report, the Nasdaq Composite slid more than twice as much as the Dow. Electronic Arts (ERTS) was the biggest loser on the Nasdaq 100 a day after reporting quarterly results, but Garmin (GRMN) soared almost 25% after beating the Street. 

While the markets ended solidly in the red, some were surprised the losses weren't steeper given the economic news and the markets' recent hot streak. 

“The news has mostly been bad but this has been a tremendously resilient market, led by the financials in the last couple of days,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald.

Stocks hit session lows after the Institute for Supply Management said its non-manufacturing index tumbled to 46.4 in July after a 47 reading the month before. Economists had predicted a stronger reading of 48.2 for this service sector gauge. A sub-50 reading indicates contraction. 

Pado downplayed the weak service-sector data. “You don’t call up six months ahead of time and say, ‘I need your services.’ Services lag,” he said.

In any case, the ISM report overshadowed new data from the Commerce Department, which revealed factory orders unexpectedly climbed 0.4% in June even as durable goods orders slid 2.2%. Wall Street had been bracing for a decline of 1% for factory orders. 

In a possible preview of Friday’s jobs report, the ADP private-sector employment report showed that private employers shed 371,000 jobs in July, slightly worse than economists expected. However, July’s job-loss pace slowed from the previous month’s loss of 473,000 jobs. And the ADP report asserted that the recession ended in June.

Wall Street received a mostly positive batch of earnings reports as Dow component Proctor & Gamble (PG) widely missed revenue estimates but Whole Foods (WFMI) beat the Street and issued upbeat guidance, Owens Corning (GLW) overcame a 23% decline in revenue to impress analysts on the bottom line and Ralph Lauren (RL) blew away expectations. 

Meanwhile, crude oil overcame a bearish oil inventory report that showed oil stockpiles rose last week by more than analysts expected. Crude settled at $71.97 a barrel, up 55 cents, or 0.77%.

Corporate Movers

Proctor & Gamble (PG), the maker of everything from shampoo to razor blades, beat the Street with non-GAAP EPS of 83 cents but its sales tumbled 11% to $18.66 billion, well below the Street’s view of $19.32 billion. At the same time, P&G was cautious about the current quarter, saying net sales will likely fall 7% to 10%.

Cisco Systems (CSCO), a tech bellwether, will take center stage after the close when it is set to report quarterly results. The new Dow member is expected to post a profit of 29 cents per share but the Street will zero in on Cisco’s guidance.

Whole Foods Market (WFMI) soared more than 16% to 52-week highs after the organic and gourmet foods seller impressed Wall Street late Tuesday with EPS of 25 cents. Whole Foods said its revenue climbed 2.1% to $1.88 billion, slightly higher than expected. The company also upped its full-year guidance for EPS to a range of 80 cents to 82 cents.

Garmin (GRMN) said it navigated its way through a 37% decline in net income during the second quarter, sending its stock surging more than 20%. The maker of GPS navigators posted an adjusted-profit of 83 cents per share, blowing away the Street’s view for just 51 cents a share.

American International Group (AIG) saw its shares surge more than 60% even though the widely-unpopular company released no news. The rally could be related to a short squeeze or optimism ahead of the start of Robert Benmosche's term as CEO on Monday or the company's earnings report on Friday. 

Foster Wheeler (FLWT) said its net income tumbled 24% in the second quarter but the engineering and construction company’s non-GAAP EPS of 98 cents widely exceeded estimates, sending its stock soaring. Amid weaker demand, Foster Wheeler’s revenue tumbled 23% to $1.11 billion, missing analysts’ estimates.

Radian Group (RDN) surged more than 80% after the mortgage insurer shocked Wall Street with a second-quarter profit and revenue Encouraged by the Obama Administration’s housing rescue program, Radian also lowered its 2009 claims forecast, lifting rivals MGIC Investment (MTG) and PMI Group (PMI).

Devon Energy (DVN) saw its earnings plunge by 76% last quarter on lower commodity prices, but the oil and natural gas driller still easily beat analysts’ estimates with an adjusted-profit of 85 cents a share. Devon’s revenue slid 41% to $2.09 billion, topping expectations.

Dean Foods (DF), the largest dairy processor in the nation, posted a 31% jump in net income and raised its full-year guidance thanks to lower raw materials costs. The maker of Silk soy milk said it earned an adjusted-profit of 43 cents per share, matching the Street’s view.

Ralph Lauren (RL) relieved shareholders with a better-than-expected 20% decline in net income last quarter to 76 cents a share. Analysts had only expected EPS of 50 cents.  Ralph Lauren’s revenue slid 8% to $1.02 billion.

Owens Corning (OC) disclosed a 19% tumble in net income due to one-time charges but the building materials maker’s non-GAAP earnings of 49 cents a share widely exceeded analysts’ forecast.

Global Markets

European markets slumped for the second day in a row. London's FTSE 100 sank 0.52% to 4647.13, France's CAC 40 lost 0.51% to 3458.53 and Germany's DAX dropped 1.18% to 5353.01. 

In Asia, Tokyo's Nikkei 225 slipped 1.18% to 10252.53, Hong Kong's Hang Seng fell 1.45% to 20494.77 and China's Shanghai Composite tumbled 1.24% to 3428.50.