NEW YORK (CNN/Money) - Investors fell prey to uncertainty about economic stability once again Tuesday as the major indexes closed lower, weighed down by a profit warning from online service provider AOL and a decision by federal regulators to fine some financial firms.

The Dow Jones industrial average (down 119.64 to 8742.93, Charts) lost about 1.4 percent, adding to its lower close Monday. The Nasdaq composite (down 35.82 to 1448.96, Charts) fell about 2.4 percent, while the Standard & Poor's 500 index (down 13.78 to 920.75, Charts) also ended the day down about 1.5 percent. U.S. stocks started the first days of December lower after gaining for eight straight weeks.

"I think we have gotten ourselves into a classic year-end speculative mentality," said David Briggs, head of equity trading at Federated Investors. "I really think the market has gotten ahead of itself. People really started buying on hope. I don't rule out some year-end euphoria, but I don't think the market has a lot more upside to it."

One of the day's big losers was AOL Time Warner (AOL: down $2.36 to $14.21, Research, Estimates), which said 2002 earnings and revenue for its online service provider unit America Online would be in line with expectations, but warned that it anticipates a 40 to 50 percent decline in advertising and commerce sales in 2003.

AOL Time Warner is the parent company of CNN/Money.

Some traders said that while the AOL warning and worries in the financial sector added to the decline Tuesday, the underlying issue is the bias for bullish news as the year winds down -- running up against some mixed economic reports.

"We've really gorged ourselves on stocks for the last eight weeks," said Scotty George, chief investment strategist at Corinthian Partners Asset Management. "The damage is really across many sectors. More than the AOL news -- the market is really tired of the feast. We need to push ourselves away from the table."

Entering the day Wednesday, investors will have more economic data to consider, including revised productivity numbers for the third quarter, the Institute of Supply Management's services index for November, and a report on factory orders for October -- all are expected to be higher.

Adding to the selling pressure in the market Tuesday, the Securities and Exchange Commission said it would fine brokerage houses Deutsche Bank, Goldman Sachs (GS: down $0.28 to $78.50, Research, Estimates), Morgan Stanley (MWD: down $0.23 to $45.09, Research, Estimates), Citigroup's (C: down $0.67 to $37.85, Research, Estimates) Salomon Smith Barney and US Bancorp Piper Jaffray a total of $8.25 million for failure to preserve e-mails. The decision came as part of an ongoing investigation into possible conflicts of interest between investment banking and research divisions at Wall Street firms.

In a morning note, influential Merrill Lynch analyst Richard Bernstein lowered the stock allocation in the firm's model portfolio to 45 percent from 50 percent and increased the bond allocation to 35 percent from 30 percent, noting the remaining uncertainty in the equities markets.

Leading the Dow lower was Merck (MRK: down $1.13 to $58.82, Research, Estimates). Lehman Brothers reduced its 2003 profit guidance ahead of the drug company's analyst meeting next week, saying it thought the company might lower its forecast and also noting declining demand for Merck's Vioxx drug. The company responded by reaffirming its guidance for 2002 and 2003 and said it would provide more details Thursday.

"I think you saw the beginning of this selloff yesterday when the market opened very strong, up a hundred points, and couldn't sustain any kind of momentum, finishing down on the day. I think this is a continuation," John Pickett, trader at La Branche & Co., told CNNfn's Market Call. "A lot of people might be selling stocks right now. They're taking profits off the table -- they might be selling some stocks to buy some Christmas presents."

As the year comes to an end, traders said continuing mixed economic reports and the lingering threat of war with Iraq still weigh on investors' wallets.

"I don't expect much to happen in December. I need to see a little political risk come out of the world first," trader Briggs added.

Asian-Pacific stocks finished mostly higher Tuesday, with Japan's Nikkei index up 0.3 percent. Concerns about the banking industry led European markets mostly lower.

Treasury prices gained slightly, leaving the 10-year note yield unchanged from 4.21 percent late Monday. The dollar rose against the yen and the euro.

Light crude oil futures rose 6 cents to $27.30 a barrel, while gold prices also moved higher.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers about 5 to 3 as 1.4 billion shares changed hands. On the Nasdaq, losers beat winners more than 2 to 1 as 1.6 billion shares traded.