Bonds fell. Oil futures soared after data showed surprisingly low gasoline inventories. Gold futures closed higher, even though the dollar index also gained ground.

Increased East-West tensions over Russias military action in Georgia are causing unease in the market, according to S&P MarketScope.

On Wednesday, the Dow Jones industrial average finished lower by 109.51 points, or 0.94%, at 11,532.96. The broader S&P 500 lost 3.76 points, or 0.29%, to end at 1,285.83. The tech-heavy Nasdaq composite index dipped 1.99 points, or 0.08%, to close at 2,428.62.

On the New York Stock Exchange, 18 stocks fell in price for every 14 that advanced, with. The ratio on the Nasdaq was 15-13 positive as Nvidia (NVDA), Applied Materials (AMAT), and Apple (AAPL) rose.

Financial stocks took another hit Wednesday after Merrill Lynch (AMAT) downgraded Morgan Stanley (MS) to neutral from buy, Goldman Sachs (GS) to underperform from buy, and Lehman Brothers (LEH) to ubderperform from neutral.

U.S. retail sales slipped 0.1% in July, and below the +0.2% expected. Moreover, the ex-auto component was up 0.4%, just below the +0.5% expected. June retail and ex-auto sales were revised up to 0.3% and 0.9%, respectively [previously +0.1% and +0.8%]. Excluding autos, gas station sales and building materials, July sales were up 0.3% from a 0.5% increase in June. Gas station sales rose 0.8%, while vehicle sales plunged 2.4%, its 6th consecutive monthly decline. Building materials rebounded 0.3%, and clothing sales were up 0.2%. Food and beverage sales rose 0.4%.

Lehman Brothers economist Michelle Meyer said in a note Wednesday that [o]n balance, we judge the Retail Sales data to be a weak report. She noted that about 87% of the fiscal stimulus had been delivered by the end of July, providing consumers with extra cash to allocate toward consumption. However, consumption has been disappointing [t]he outlook for consumers is grim.

Import prices jumped 1.7% in July, led by a 4.0% rise in petroleum prices. The rise was greater than the market expectation of 1.2%. Nonpetroleum import prices surged 0.9%, reflecting the recent weakness of the dollar. Export prices nearly kept pace, rising 1.4% [0.8% excluding agriculture.

"The high import prices will put upward pressure on consumer prices in tomorrow's [July CPI] release," says S&P Economics.

Business inventories rose 0.7% in June, while sales surged 1.7%. The inventory rise was a bit more than the 0.5% expected by the market. The strong sales lowered the inventory/sales ratio to 1.23 months from 1.24 in May and 1.27 a year earlier.

"The higher inventories are good news for second-quarter GDP, which could be close to 3% when revised," says S&P Economics.

Dow Jones Newswires reported that Minneapolis Fed President Stern said "[t]he pace of expansion has been subdued, and I would expect that to continue, not just because of credit conditions." "I expect the expansion to remain modest certainly into next year because I think it will take some time for the headwinds to dissipate. They are not going to dissipate, in my judgment, that rapidly."

September West Texas Intermediate crude oil futures were up $2.89 to $115.90 per barrel following an Energy Dept. report that said U.S. commercial crude oil inventories fell 400,000 barrels in the week ended Aug. 8. At 296.5 million barrels, crude oil inventories are in the lower half of the average range for this time of year. September reformulated gasoline futures were up 8.91 cents to 293.23 cents as total motor gasoline inventories fell 6.4 million barrels to 209.2 million barrels last week -- near the lower boundary of the average range.

Among Wednesdays stocks in the news, Deere & Co. (DE) posted $1.32 vs. $1.18 third quarter EPS on a 17% worldwide net sales and revenue rise. Wall Street was looking for EPS of $1.36. The company expects fourth quarter equipment sales to increase by about 29% [including 5% or currency translation impact], and sees net income of about $425 million. Deere notes escalating raw material costs are expected to have an impact on margins for fourth quarter. It also expects fiscal 2008 worldwide sales of construction and forestry equipment to decline by approximately 5%.

Navistar International (NAV) reduced its industry forecast of U.S. and Canadian retail sales volume for Class 6-8 trucks and school buses for fiscal 2008, but reaffirmed its guidance for record fiscal 2008 revenues of more than $15 billion, with solid profitability. The company forecast fiscal 2008 EPS in the range of $4.26-$5.72.

Applied Materials reported better-than-expected 17 cents vs. 37 cents third quarter non-GAAP EPS on a 28% sales drop. Wall Street was looking for EPS of 14 cents.

Toll Brothers (TOL) said preliminary third quarter home building revenues were approximately $796.5 million, backlog was approximately $1.75 billion and net signed contracts were approximately $469.7 million. The company noted that total cancellations of 195 were lowest quarterly total in over two years.

Macys Inc. (M) reported lower-than-expected 17 cents vs. 16 cents second quarter EPS on 2.1% lower same-store sales. The company sees $1.70-$1.85 fiscal 2009 EPS, excluding one-time consolidation costs and impairment charges, and anticipates same-store sales to be down 1% to down 1.6%.

Liz Claiborne (LIZ) posted 9 cents vs. 23 cents second quarter adjusted EPS from continuing operations on a 7.1% sales decline. It sees 37 cents to 42 cents third quarter adjusted EPS, and narrows its $1.40-$1.60 2008 adjusted EPS view to $1.40-$1.50.

Longs Drug Stores (LDG) agreed to be acquired by CVS Caremark (CVS) in a $2.9 billion deal [including assumption of debt]. Terms: $71.50 cash per Longs share.

Ameriprise Financial (AMP) said it agreed to buy H&R Blocks (HRB) brokerage business, H&R Block Financial Advisors, for $315 million in cash.

Major European stock indexes finished solidly lower Wednesday. In London, the FTSE 100 index fell 1.55% to 5,448.60. In Paris, the CAC 40 index shed 2.56% to 4,402.97. Germanys DAX index declined 2.49% to 6,422.19.

Major Asian indexes slumped Wednesday. Japans Nikkei 225 index tumbled 2.11% to 13,023.05. In Hong Kong, the Hang Seng index lost 1.61% to 21,293.32.

Treasury market

Treasuries moved lower in price Wednesday. The 10-year note was lower at 100-11/32 for a yield of 3.966%, while the 30-year bond fell to 98-21/32 for a yield of 4.587%.