NEW YORK (CNN/Money) - The major indexes closed lower Wednesday as investors continued to take profits on a two-month rally and digested some bad news from Disney and the tech sector, despite a late-day run up by the Dow.

The Dow Jones industrial average (down 5.08 to 8737.85, Charts) closed a bit lower after trading up for the last hour of the day. The Standard & Poor's 500 index (down 3.17 to 917.58, Charts) and the Nasdaq composite (down 18.61 to 1430.35, Charts) also ended down.

"This [comeback] is a very positive sign for the market," said Michael Carty, principal at New Millennium Advisors. "When the market is in a bull market phase, investors will start to ignore the bad news."

Traders said the pullback in stocks early this week and for much of the day Wednesday was to be expected after such a sharp rally since the Oct. 9 lows -- and that the late-day shift to buying in the broader market indicates the market's correction could be on its way to completion.

"Almost every time since the Oct. 9 low that we've had a pullback of 2 percent or more, and we've had five or six, I think, they've all been on lighter volume," Stephen Porpora, managing floor broker at William O'Neil & Co., told CNNfn's Market Call. "What that's telling you is that the institutions are not changing the [buying] trend -- they are not bailing out of stocks. I think it's a normal and understandable pause."

Entering the day Thursday, investors will get a look at a report on new weekly unemployment claims, expected to rise to 374,000 from 364,000 in the previous week, according to economists surveyed by Briefing.com.

But, the real test will be seen on Friday, when the number of nonfarm jobs and the unemployment rate for the month of November are released -- both are expected to rise.

Before the opening bell, Morgan Stanley lowered its investment ratings on four technology sectors, adding weight to the entire industry.

The firm downgraded the chip and semiconductor equipment sectors to "attractive" from "in line," and lowered its ratings on the electronic manufacturing services and the enterprise hardware sectors to "cautious" from "in line."

No. 1 chipmaker Intel (INTC: down $0.57 to $19.74, Research, Estimates) and IBM (IBM: down $1.52 to $83.69, Research, Estimates), both components of the Dow, slid on the comments.

After the closing bell Tuesday, Dow member Hewlett-Packard (HPQ: down $0.86 to $18.37, Research, Estimates) lowered its sales growth expectations to a range of 2 percent to 4 percent -- from an earlier 4 percent to 6 percent estimate -- adding to investors' pullback from tech stocks. During the first day of a two-day analyst meeting, the company also said it's ahead of schedule on cost-cutting measures.

Also hurting the broader market, Disney (DIS: down $0.86 to $17.68, Research, Estimates) warned after the closing bell Tuesday that its fiscal 2002 profit would be revised lower and its first quarter would be weaker than previously forecast, citing lower-than-expected revenue from its recently released film, "Treasure Planet."

The company also announced a probe by the Securities and Exchange Commission into the independence of some of its directors.

Morgan Stanley downgraded shares of AOL Time Warner (AOL: down $0.37 to $13.84, Research, Estimates) to "equal weight" from "overweight" and lowered its price target on the stock a day after the media conglomerate said ad sales at its AOL unit next year would likely be cut by half.

The company's warning Tuesday pushed the broader market into a decline.

Investors' concerns about a possible war with Iraq also crept back into the picture, as the Dec. 8 deadline for the country to provide a full accounting of its weapons of mass destruction and related missile programs quickly approached.

"The Dec. 8 deadline -- it's a geopolitical concern," said Tony Dwyer, market strategist at Kirlin Securities.

Some of the support the Dow received late in the day came from a morning report that indicated the economy's services sector might be healthier than Wall Street had expected.

The Institute for Supply Management said its services sector index rose to 57.4 in November from 53.1 in October, better than the 54 level expected by economists, according to Briefing.com. A reading of 50 or greater signifies economic expansion. The report gave a short-lived boost to stocks immediately after the announcement.

The markets also digested a government report revising third-quarter productivity growth to a better-than-expected 5.1 percent from the 4 percent originally reported. Economists expected a revision to 4.5 percent, according Briefing.com.

Separately, the government said October factory orders gained 1.5 percent, slightly below the 1.7 percent average gain forecasted by economists.

Asian-Pacific stocks ended mostly lower Wednesday, with Tokyo's Nikkei index a 2.2 percent loser. European markets mostly saw declines.

Treasury prices rose, sending the 10-year note yield down to 4.15 percent from 4.21 percent late Tuesday. The dollar slipped against the euro, which rose to the $1 parity level, but gained against the yen.

Light crude oil futures fell 59 cents to $26.71 a barrel. Gold prices moved higher.

Market breadth was negative. On the New York Stock Exchange, decliners edged by advancers as 1.5 billion shares traded. On the Nasdaq, losers beat winners 9 to 7 as 1.9 billion shares changed hands.