NEW YORK (CNN/Money) - Stocks got battered Monday as a new U.N. resolution posed by the United States and Britain led to widespread fear on Wall Street that war with Iraq was creeping ever closer.

Treasury bonds, oil and gold all rose as investors sought safe havens for their money, while the dollar ended mixed.

The Dow Jones industrial average (down 159.87 to 7858.24, Charts) and the Nasdaq composite (down 26.64 to 1322.38, Charts) both sank 2 percent, while the S&P 500 index (down 15.59 to 832.58, Charts) fell 1.8 percent. The selloff came after solid advances Friday capped a second week of gains for the market, despite worries over a possible U.S.-led attack on Iraq that have been vexing investors for weeks.

"It continues to be a tug of war with all of the uncertainty going on with respect to the Middle East," said Brett Gallagher, head of U.S. equities at Julius Baer. "I don't think [the markets] are going to see long-term effects after a war in the Middle East. The die has been cast -- we are going into Iraq. The U.S. is looking to force a vote to show they've got a majority."

After Monday's retreat, Tuesday doesn't look to be much better. Stocks in Tokyo sank early Tuesday after North Korea fired a missile into the sea near the Korean peninsula, according to South Korean defense officials quoted by Reuters, a move that could inflame tensions in the area and worry already nervous investors even further.

And as if all that weren't enough, economists and market analysts are forecasting declines in consumer confidence and home sales, as well as Home Depot earnings, so the early signals don't bode well for much of a rebound.

Investors, already reluctant to commit fresh funds to stocks given fears of war and the sluggish U.S. economy, grew particularly nervous about the latest developments at the United Nations Monday.

The United States, Britain and Spain submitted a new resolution to the Security Council that does not include deadlines or an explicit threat of military force, but states that the government of Iraqi President Saddam Hussein has failed to comply with previous U.N. resolutions that warned of "serious consequences" if it refused to give up its pursuit of weapons of mass destruction.

The White House said it wants action on the document "in short order." A vote on the new resolution could come in the next three weeks. (Click here for full coverage from CNN.com).

Meanwhile, news of a big earnings restatement from supermarket owner Ahold, and of disappointing results from an AIDS drug trial from VaxGen, only strengthened the negative sentiment.

Uncertainty has kept trading volume low and stock prices slowly shrinking for months. Only about 1.2 billion shares changed hands on the New York Stock Exchange Monday, as declining stocks beat advancing stocks by better than a 2-to-1 margin. On the Nasdaq, losers also outweighed winners better than 2-to-1, on volume of 1.2 billion shares.

Traders said while the market may look to be trading significantly lower, the volume is so low that the direction remains fuzzy -- and is affected minute-by-minute by the news.

On Tuesday, investors will get a reading on consumer confidence for February after the opening bell. Economists surveyed by Briefing.com expect a reading of 77, down from 79 in January. Existing home sales probably fell to an annual rate of 5.80 million in January, from 5.89 million in December, according to average forecasts.

Two Dow components are due to report quarterly results: Hewlett-Packard (HPQ: down $0.42 to $17.75, Research, Estimates) and Home Depot (HD: down $0.23 to $22.18, Research, Estimates). Analysts expect HP to report higher profits but the home improvement retailer to post lower earnings per share.

Meanwhile at the United Nations, France, Germany and Russia -- all countries that oppose war against Iraq -- submitted a proposal to the Security Council setting "deadlines for disarmament."

Julius Baer's Gallagher said that while the United States doesn't necessarily expect that these countries will change their position, it wants to show that a majority of the U.N. Security Council backs the U.S. stance. He said U.S. officials think proving this point will be "good enough to justify going in" to Iraq.

Over the weekend, chief U.N. weapons inspector Hans Blix ordered Iraq to begin destroying its Al Samoud-2 missiles, found to exceed the range prescribed by the United Nations. The destruction has to begin by Saturday. Blix's next update on the weapons inspection process is slated for March 7.

According to a Reuters report, Iraqi President Saddam Hussein challenged President Bush to a live, international television debate about the Iraq crisis late Monday. Dan Rather, CBS news anchor, said he had an exclusive interview with Hussein, who discussed his desire for the debate, the report said.

"We can't believe any trend right now, until the issues tied to this conflict are resolved," said Jack Ablin, chief investment officer at Harris Trust. "Unfortunately, in this kind of market there's going to be no clear direction. We're going to be in this holding pattern for the next few weeks, at least."

Retail was one of the few market sectors garnering selective buying attention after home improvement chain Lowe's (LOW: up $2.08 to $38.10, Research, Estimates) reported fiscal fourth-quarter earnings that were much higher than a year earlier and stronger than had been expected. The company also forecast first-quarter and fiscal year 2004 earnings per share that will be stronger than analysts are currently expecting. Lowe's saw its stock jump more than 5 percent on the news.

Rival Home Depot (HD: down $0.23 to $22.18, Research, Estimates), from which Lowe's has been stealing market share, saw its shares slip. Home Depot is due to report its own quarterly results Tuesday. Both companies were among the most active stocks trading on the NYSE.

Elsewhere in the market, losses in trucking stocks were significant.

Bear Stearns downgraded the trucking sector to "market weight" from "market overweight" Monday, claiming higher fuel costs, war worries and bad weather have taken their toll on the industry. Trucking stocks, including Roadway (ROAD: down $2.34 to $30.51, Research, Estimates), Hunt Transport (JBHT: down $2.13 to $24.02, Research, Estimates) and Yellow (YELL: down $0.72 to $22.11, Research, Estimates), sank on the report.

The American depositary receipts of Dutch-run Ahold (AHO: down $6.53 to $4.16, Research, Estimates), a grocery store chain that owns the Stop & Shop and Giant supermarkets, fell more than 60 percent after the company said it had overstated operating earnings by $500 million in 2001 and 2002. Its chief executive and chief financial officers resigned.

On the Nasdaq, VaxGen (VXGN: down $6.16 to $6.86, Research, Estimates) fell almost 50 percent after the biotech revealed that trials of its experimental AIDS vaccine were unsuccessful -- but showed signs that it may prove helpful to certain races of people. VaxGen was one of the most heavily traded stocks on the Nasdaq.

AOL Time Warner (AOL: down $0.54 to $10.06, Research, Estimates), the parent of CNN/Money, was the second most active stock on the NYSE, losing more than 5 percent and weighing on markets. The Wall Street Journal reported Monday that the company is in preliminary talks to sell its Warner Music operations to EMI for between $3 billion and $4 billion.

U.S. Treasury bonds regained some of their luster as a safe haven amid the stock market's malaise. The benchmark 10-year note rose 12/32 of a point in price, lowering its yield to 3.84 percent.

In commodities trading, light crude oil for April delivery jumped 90 cents to $36.48 a barrel, and gold for April delivery rose $4.60 to $356.40 an ounce.

The dollar fell against the euro, and the yen slumped after the appointment of a new chief at the Bank of Japan.

Stocks in Europe closed mostly lower, while Asian-Pacific markets ended mostly higher.