NEW YORK » Wall Street turned cautious yesterday after a two-day rally as disturbing corporate news reminded investors of the magnitude of the economy's troubles. Stocks tumbled while demand for the safety of government debt surged.

Although the market was down sharply, the pullback was uneven, showing that investors are uneasy but also very selective. The Dow Jones industrials fell 243 points, or 2.72 percent, but the Nasdaq composite index fell a more moderate 1.55 percent as investors decided to buy some hard-hit technology names.

Meanwhile, demand for the safety of Treasury bills spiked so high that investors were willing to earn no return at all on investments bought at a Treasury Department auction. Interest rates on four-week Treasury bills slid to zero from 0.04 percent in an auction just a week earlier.

Recent trading has indicated that big institutional investors are hedging their bets and putting money on both sides of the market. They have been looking for signs of recovery in a stock market that is down 43 percent from its October 2007 peak but are also keeping a hand in cash and bonds in case a run-up in stocks since last month gives way.

Investors are worried that companies' difficulties could make an economic turnaround harder. FedEx, a barometer of the U.S. economy, cut its forecast for fiscal 2009 earnings and capital spending as the slumping economy eroded package deliveries. Meanwhile, Danaher Corp., which manufactures bar code readers and Sears' Craftsman tools, reduced its fourth-quarter profit forecast and announced plans to cut 1,700 jobs.

The Dow Jones industrial average fell 242.85, or 2.72 percent, to 8,691.33 after logging a gain 560 points over Friday and Monday. The Standard & Poor's 500 index fell 21.03, or 2.31 percent, to 888.67. The Nasdaq composite index fell 24.40, or 1.55 percent, to 1,547.34.

The Russell 2000 index of smaller companies fell 15.67, or 3.26 percent, to 465.71.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where consolidated volume came to 5.57 billion shares compared with 6.42 billion shares traded Monday.

Bond prices rose after the Treasury auction and as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.65 percent from 2.74 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.03 percent, from 0.01 percent late Monday.

Still, the low yields indicate a high degree of investor unease.

The dollar was mixed against most other major currencies, while gold prices slipped.

Light, sweet crude fell $1.64 to settle at $42.07 a barrel on the New York Mercantile Exchange.