NEW YORK (CNN/Money) - Stocks started the second quarter on a mixed note Monday as blue chips fell on concerns about violence in the Middle East, while signs of a recovery in the hard-hit chip sector boosted technology stocks.

The Dow Jones industrial average fell 41.24 to 10,362.70; it had been down more than 100 points earlier in the day. The Nasdaq rose 17.27 to 1,862.62; it had been down as much as 24 points earlier. The Standard & Poor's 500 lost 0.85 to close at 1,146.54.

"The Mideast news, and oil prices up around $27 a barrel is psychologically hurtful, but technology held up and pulled through," Larry Wachtel, market analyst at Prudential Financial told CNNfn's Street Sweep. "There's still going to be this overhanging cloud day-to-day, but when the earnings reporting starts, that will be the catalyst."

Casting a shadow over trading, Israeli forces were on the move in the West Bank one day after Prime Minister Ariel Sharon said that his country was at war with terrorism. The declaration came after two suicide bombings Sunday, one of which resulted in the deaths of at least 14 people. On Monday, a car bomb exploded, injuring 3 and killing the bomber.

"A war in the Mideast or any kind of war could throw a wrench in the recovery, even though it's [happening] at a distance," Kari Bayer, senior U.S. strategist at Merrill Lynch, told CNNfn's Halftime Report. "As far as its effect on the market, any time you have uncertainty like that, it sends stocks lower."

Retailers were under pressure after Merrill Lynch downgraded 14 names including Dow component Wal-Mart Stores (WMT: down $1.74 to $59.56, Research, Estimates), which was also downgraded by UBS Warburg. Defense names were higher on Mideast concerns, while semiconductors rose on a strong industry report and some upgrades.

Stocks seemed to shrug off a pair of strong economic reports. The Institute of Supply Management's survey of manufacturing activity showed a rise to 55.6 in March from 54.7 in February. Economists surveyed by Briefing.com were expecting a rise to 54.8. Construction spending in February rose 1.1 percent, the government said, showing continued strength in the resilient housing sector. The consensus was for a 0.6 percent gain.

For the just-completed first quarter, analysts surveyed by First Call expect profits to have fallen 8.8 percent. Companies will release detailed accounts of their performances over the next few weeks.

In international trade, Asian stocks closed mixed while European markets were closed for the Easter holiday. The dollar was stronger against the yen but weaker versus the euro. Oil prices rose to a six-month high on the Middle East tensions; Light crude prices rose 69 cents to $27 in New York. Treasurys closed lower, pushing the 10-year note yield to 5.43 percent.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers 8-to-7 as 1.03 billion shares changed hands. On the Nasdaq, losers topped winners 5-to-4 as almost 1.54 billion shares traded.

Intel (INTC: up $0.76 to $31.17, Research, Estimates) was among the chipmakers getting a boost from a report by the Semiconductor Industry Association that showed global chip sales totaled $10.01 billion in February. While the overall figure was little changed from January, some analysts saw positive signs in a few specific categories.

In addition, Banc of America Securities raised its rating on chip equipment names Applied Materials (AMAT: up $1.25 to $55.52, Research, Estimates) and PMC-Sierra (PMCS: up $1.37 to $17.65, Research, Estimates). The firm also upgraded telecommunications names Juniper Networks (JNPR: up $0.61 to $13.23, Research, Estimates) and Ciena (CIEN: up $0.37 to $9.37, Research, Estimates).

Shares of Sun Microsystems (SUNW: up $0.70 to $9.52, Research, Estimates) traded up after a note from Merrill Lynch said strong orders in the last week and a half indicate that the largest maker of Unix servers should have no problem making its forecasts for the just-completed March quarter.

Raytheon (RTN: up $0.70 to $41.75, Research, Estimates) and Honeywell (HON: up $0.24 to $38.51, Research, Estimates) were among the defense names trading higher on the Mideast concerns.

Among a large list of brokerage downgrades for the new quarter, automaker Ford (F: down $0.76 to $15.73, Research, Estimates) was lowered to a "sell" from a "hold" by Prudential while telecom Nokia (NOK: up $0.20 to $20.94, Research, Estimates) was cut to a "buy" from a "strong buy" at Credit Suisse First Boston.

Credit Suisse First Boston and UBS Warburg cut profit targets on data storage maker EMC (EMC: up $0.28 to $12.20, Research, Estimates).

Shares of Digital River (DRIV: down $7.71 to $7.10, Research, Estimates), a provider of e-commerce systems, fell sharply after the company lowered its profit expectations for the first quarter and full year.

Cable television operator Adelphia (ADLAC: down $1.78 to $13.12, Research, Estimates) has asked the Securities and Exchange Commission for extra time to file its annual report and may also be considering selling some of its assets, according to a published report.

Chipmaker nVidia (NVDA: down $0.73 to $43.63, Research, Estimates) was weaker after a Barron's article said that with sluggish PC sales, the company's market share was in danger of losing out to competitors.

Copier maker Xerox (XRX: up $0.33 to $11.08, Research, Estimates) said it will restate results from 1997-2001 as part of a settlement agreement with the Securities and Exchange Commission.

Sierra-Pacific Resources (SPF: down $0.45 to $27.65, Research, Estimates) was one of the New York Stock Exchange's biggest pressure points after a unit of the energy company was denied permission to recover millions of dollars.