NEW YORK (CNN/Money) - A weak manufacturing report knocked stocks lower Monday, despite any passing relief over the latest Iraq developments and the capture of a key al Qaeda terrorist. Tuesday's market doesn't look likely to break free from the same concerns.

The distraction of a potential war with Iraq has taken its toll on stocks for the past two months, even amid a continued slowdown in the economy and corporate concerns.

With little new news expected Tuesday, war concerns are expected to remain front and center.

"If you look at the market overall, you are in a negative place technically," said John Hughes, market analyst at Shields & Co. "The whole thing on the international front is kind of noise. It's a distraction from the fact that the economy is still choppy and that's why stocks aren't going anywhere. You almost want to get this whole geopolitical thing out of the way so stocks can just go down, which is where they would be without this, instead of just drifting."

Kohl's (KSS: down $1.35 to $47.55, Research, Estimates) is among the few companies due to report results on Tuesday. The retailer is forecast to have earned 80 cents, up from 68 cents a year earlier. There are no new economic reports expected Tuesday.

On Monday, the Nasdaq composite (down 17.23 to 1320.29, Charts) lost around 1.3 percent, while the Dow Jones industrial average (down 53.22 to 7837.86, Charts) and the S&P 500 index (down 6.34 to 834.81, Charts) posted declines of less than 1 percent.

Morning reports showing slower-than-anticipated growth in manufacturing and a dip in personal spending set stock investors off on the wrong foot. Although blue chips eventually threw in the towel as well, for most of the day, selling was focused on tech and telecom stocks and that made the Nasdaq the biggest loser among the major indexes.

Also adding to the negative tone: a weak dollar and an afternoon news report citing U.S. officials that said North Korean fighter jets had approached a U.S. reconnaissance plane in a weekend incident.

Market breadth was mixed to negative. On the New York Stock Exchange, losers and winners were fairly even as 1.17 billion shares changed hands. On the Nasdaq, some 1.23 billion shares traded, with decliners beating advancers 9 to 7.

The weak economic news at home overwhelmed any enthusiasm about the geopolitical developments abroad.

"You had a pop on all this news over the weekend, but then the ISM comes in and there's no sustain," added Shields & Co.'s Hughes. "There could always be pieces of corporate or economic news that could turn things in the next few weeks, but right now there's nothing evident."

Case in point: the Institute for Supply Management's February index on manufacturing fell to 50.5 from a revised 53.9 in January, a reading that still showed expansion, but was well below the 52 reading economists were betting on.

"The economic numbers were on balance disappointing. You also have the dollar a lot weaker today because of the continued uncertainty with the international situation," said Peter Green, market analyst at MKM Partners.

Investors were relieved after the capture Saturday in Pakistan of Khalid Shaikh Mohammed, a high-level al Qaeda leader believed to be the key planner of the Sept. 11, 2001 terrorist attacks.

Additionally, fear of imminent war with Iraq abated somewhat Monday, after Baghdad said it would keep destroying its Al Samoud 2 missiles deemed in violation of U.N. arms restriction, provided that it does not receive evidence that the United States intends to go to war regardless, in which case it would halt the process.

But any market enthusiasm was short-lived, amid the broader concerns about the economy.

In corporate news, Intel (INTC: down $0.60 to $16.66, Research, Estimates) closed about 3.5 percent lower in very active trading following a mixed note by Merrill Lynch on the chipmaker. The stock was the Dow's biggest decliner. Merrill said it believes Intel will tighten its current first-quarter revenue outlook of between $6.5 billion and $7 billion when it gives its mid-quarter update this Thursday.

On the one hand, the firm said, March is usually a strong month for the chip industry, and Intel's launch of a new notebook platform on March 12 should be positive. But on the other hand, Hewlett-Packard's (HPQ: up $0.01 to $15.86, Research, Estimates) weaker-than-expected January quarter and outlook is discouraging. In addition, Intel's attempt to raise prices by up to 20 percent in the flash memory section of its business doesn't seem to be working, Merrill Lynch added.

Intel is both a member of the 30 Dow industrials and a heavily-weighted stock on the Nasdaq, and as a result, what the firm has to say about a long hoped-for pickup in technology spending will be scrutinized closely for implications for the rest of the industry.

On Monday, the Semiconductor Industry Association said global chip sales were $12.2 billion in January, down 2.4 percent from December, but up 22 percent from a year earlier.

Wall Street's big decliner Monday was Capital One (COF: down $2.72 to $28.25, Research, Estimates), losing 9 percent after its chief financial officer resigned over a Securities and Exchange Commission investigation into insider trading.

U.S. Treasury bonds drifted higher, pushing their yields lower. The bellwether 10-year note gained 5/32 of a point in price, pushing its yield down to 3.67 percent. The dollar declined against both the yen and the euro.

The price of oil fell with light sweet crude futures for April delivery losing 72 cents to $35.88 a barrel in New York, even after Kuwait said it could shut down as much as a third of its daily oil output in the event of a war with Iraq. Gold lost $1 to $349.30 an ounce.