NEW YORK – Wall Street’s realization that the capture of former Iraqi leader Saddam Hussein really had little to do with U.S. markets sent stocks into a tailspin Monday afternoon.

After surging in the opening minutes of trade and clinging to gains for most of the session, the Dow Jones Industrial Average fell into negative territory in the final hour of trading, closing down 19.34 points, or 0.2 percent, to 10022.82, after rising to an early high of 10139 on the Saddam news.

Leading the Dow lower was retailing behemoth Wal-Mart, which tumbled 3.4 percent after it cautioned that holiday sales were tracking to the low end of expectations.

The Nasdaq Composite Index slumped 30.74 points, or 1.6 percent, to 1918.26 after an earlier climb to 1979. The S&P 500 finished down 6.11 points, or 0.6 percent, at 1068.03.

Brian Piskorowski, market analyst at Wachovia Securities, attributed Monday’s early rally more to “short-covering and the like” than Saddam’s arrest.

“This is obviously good news, but the market’s been doing well even with Saddam in hiding. So I think a lot of the easy money’s been made,” he said. The analyst said he also didn’t get the sense anyone was willing to make any big bets and “try to be a hero” in the last couple of weeks of trading this year.

Eight Dow components, including Caterpillar, Coca-Cola Co., Honeywell, 3M and United Technologies, rallied to new 52-week highs intraday but four – United Technologies, International Paper, General Motors and Honeywell – ended up with losses for the day.

General Motors rose to a new high of $50.63 intraday but closed down 86 cents, or 1.7 percent, at $48.93 despite an upgrade from Deutsche Bank. Analyst Rod Lache raised his ratings on both GM and Ford to “hold” from “sell” on the belief auto industry demand may be stronger than originally expected. Ford shares lifted 56 cents, or 4.1 percent, to $14.28. They too hit a new 52-week high intraday.

Intel was another big blue-chip decliner, sliding 2 percent to close at $30.24. Chip stocks plunged even though an SG Cowen analyst upgraded makers Texas Instruments, National Semiconductor and Cypress Semiconductor to “strong buy,” saying rising demand, increasing prices and relatively fixed costs have created a “bullish perfect storm.” The PHLX Semiconductor Index lost 2.8 percent on the day.

Cisco Systems shares also ended with a loss after reaching $24.60 earlier in the day, a level it hasn’t seen since early March 2001. Shares of the networking giant closed down 11 cents at $23.98.

Ahead of its earnings report after the closing bell, Oracle shares fell 13 cents to close at $12.70. The median estimate of analysts surveyed by Thomson First Call was for earnings of 11 cents a share for the enterprise software company.

Decliners led advancers 2,001 to 1,268 on volume of about 1.45 billion shares while on the Nasdaq losers outnumbered winners 2,261 to 950 on volume of nearly 1.8 billion shares.

Semiconductors, airlines, networkers, oil services, integrated oil and retailers were the biggest sector losers. Gold was the only real bright spot.

In the commodities market, February gold futures closed at $409.90 an ounce on the New York Mercantile Exchange, down 20 cents but well off the session’s low of $405.20. January crude closed up 14 cents at $33.18 per barrel, after falling earlier to a low of $32.03.

Phil Flynn, senior analyst with Alaron Trading, said the capture of Saddam was excellent news for Iraq’s long-term oil industry prospects and he expects the short-term impact would be minimal as higher demand for oil drives prices higher. He expects crude to hit $40 a barrel.

The dollar’s rally on the Saddam news also fizzled. The euro was up 0.3 percent at $1.2300. The dollar was down 0.3 percent at 107.45 yen.

U.S. Treasuries remained under pressure. A benchmark 10-year Treasury note was down 10/32 at the U.S. close, to 99 24/32, yielding 4.28 percent.

Business conditions at manufacturers in the New York region cooled a bit in December, the Federal Reserve Bank of New York said. The Empire State Index fell to 37.4 in December from a record 41.0 in November.

“While it is reasonable for the equity markets to rally initially on the good news of Saddam Hussein’s capture on Saturday night, we would urge restraint in chasing the market,” Smith Barney equity strategist Tobias Levkovich wrote in a research note.

He said terrorism was unlikely to stop as a result and “regional stability was never just one arrest away.” Underscoring his point, two car bombs exploded in Baghdad Monday, causing injuries.

Paul Nolte, director of investments at Hinsdale Associates, told clients the harder call will be to determine “what next.”

“Eventually it (the capture of Saddam) was to happen, and the reaction would be predictable, however we can also argue rather convincingly that it does little to alter the U.S. economy and change corporate/consumer attitudes about spending,” Nolte said.

He added that, while the economy is indeed growing, shifts within the markets are indicating heightened risks and he said he continues to be “amazed” by the market’s ability to shrug off adversity and advance.

Wal-Mart said U.S. same-store sales for the five-week holiday period ending Jan. 2 are tracking near the low end of its stated target range for growth of 3 percent to 5 percent.

The Bentonville, Ark., retailing giant and Dow component noted, however, that the trend for holiday sales has been for purchases to ramp up towards the end of the season, and that current figures do not reflect gift card purchases. Wal-Mart shares skidded $1.76, or 3.4 percent, to $50.74.

Other retailers were also sharply lower after Wal-Mart’s comments. Target slumped 4.3 percent; BJs Wholesale shed 3.2 percent; Abercrombie & Fitch fell 4.5 percent; and Saks lost 3.1 percent. The sector’s main gauge, the S&P Retail Index slid 1.7 percent.

Analysts also had their eyes on the blue chips.

Morgan Stanley reiterated its “outperform” rating on blue chip General Electric and raised its price target to $36 from $33, saying the industrials conglomerate’s earnings outlook “has turned positive for the first time in several years.”

Davis added that GE fits all his key themes for industrial stocks in 2004, such as “rotation to quality, buying the laggards and rotation to later cycle names.”

GE shares edged up 0.7 percent, to $30.33.

AT&T was targeted with two downgrades but the stock battled back from early losses to finish flat despite the broad-based decline.

Credit Suisse First Boston downgraded Ma Bell to “neutral” after the telecommunications company said it sees around a 6 percent decline in its outlook for business revenue in fiscal 2003. “We believe the magnitude of this decline represents a shift in AT&T’s tactics, with the company now willing to aggressively price down to defend share,” CSFB said.

Meanwhile, Bear Stearns cut its rating on the stock to “peer perform” from “outperform” after concluding that the pricing environment had deteriorated precipitously in the last quarter. The firm also cut its 2004 earnings forecast to $1.45 from $1.55.

Meanwhile, Home Depot gave up early gains and finished down 30 cents, or 0.9 percent, at $34.35 following positive comments from UBS analyst Gary Balter.

He told clients that a meeting with the home improvement retailer’s management left him confident that a strengthening internal fundamental story will offset any macro concerns. He reiterated his “buy” rating and $44 price target for the shares.

Currency issues prompted the brokers to take a closer look at a couple of other Dow stocks.

UBS raised its price target for Coca-Cola Co. to $58 a share, citing its expectations for better long-term margins and also raised its 2004 earnings per share forecast by a penny to $2.08.

“Currency trends suggest upside to these estimates, as 75 percent of KO’s income is foreign,” UBS said. Coke shares were up 42 cents, or 0.9 percent, to $49.79 after touching a 52-week high of $49.86 intraday.

Meanwhile, Lehman Brothers raised its earnings per share estimate on Procter & Gamble by 2 cents for the December quarter to $1.27 a share, as the broker looks for stronger revenue contribution from foreign currencies. P&G recently ended up $1.00, or 1 percent, at $97.82.

Germany’s biggest household chemical manufacturer, Henkel KGaA, agreed to acquire Dial Corp. in a cash deal valued at $2.9 billion. Dial shares popped 9.7 percent to $28.38.

Under the agreement, Dial shareholders would receive $28.75 per share, a premium of 11 percent on Dial’s closing price of $25.88 on Friday. Henkel also said it plans to sell a significant part of its stakes in Clorox or Ecolab.

Enterprise Products Partners, El Paso Corp. and GulfTerra Energy Partners announced an agreement to merge Enterprise Products and GulfTerra, creating a $13 billion energy partnership, and netting El Paso $1 billion in cash.