NEW YORK - Wall Street retreated yesterday as violence in the Middle East and a resulting jump in oil prices reminded investors that the stock market could face problems beyond the recession.

The collapse of a Dow Chemical Co. joint venture with Kuwait, meanwhile, intensified Wall Street's economic worries.

Investors remained cautious in a holiday-shortened week, unwilling to make big bets in the final three days of trading for 2008.

Trading volume is extremely light during the holidays, and that is contributing to the market's swings, said Todd Leone, managing director of equity trading at Cowen & Co. Low volume tends to skew price movements.

"What's going on in Israel didn't read well over the weekend," Leone said. "Beyond that, it is an incredibly quiet session. It's really not taking much to move the markets."

Investors also digested a potential blow to deal making on Wall Street. On Sunday, Kuwait's government canceled its $17.4 billion K-Dow Petrochemicals joint venture with Dow Chemical, saying it was "very risky" because of the global financial crisis and low oil prices. The joint venture was set to begin Thursday.

Dow Chemical's $15.3-billion takeover bid for Philadelphia's Rohm & Haas Co. could be jeopardized, since Dow was planning to use $9 billion from the deal to help pay for the Rohm & Haas purchase.

While Rohm & Haas maintained yesterday that the deal won't be affected by Dow's substantial loss of income from the venture in Kuwait, investors punished its shares, driving them down $10.22, or 16 percent, to $53.34. Dow Chemical shares lost $3.60, or 19 percent, to $15.32.

The Dow Jones industrial average fell 31.62 to 8,483.93.

Broader indexes also declined. The Standard & Poor's 500 index fell 3.38 to 869.42; the Nasdaq composite index fell 19.92 to 1,510.32.

Declining issues were ahead of advancers by nearly 4 to 3 on the New York Stock Exchange, where consolidated volume came to an extremely light 1.40 billion shares, down from 1.71 billion on Friday.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.10 percent from 2.14 percent late Friday. The yield in the secondary market on the three-month T-bill, in great demand because it is considered one of the safest investments, rose to 0.03 percent from 0.01 percent late Friday.

Wall Street has largely written off the final three trading days of 2008, the worst year since Herbert Hoover was president. The Dow has fallen 36 percent, the biggest drop since 1931, and the Standard & Poor's 500 index is set to record the biggest drop since its creation in 1957.

Alexander Paris, economist and market analyst for Chicago-based Barrington Research, said investors had more reasons to sell yesterday rather than scoop up stocks. For instance, he said some investors might be selling for tax purposes or positioning ahead of economic data to be released later this week, including the Institute for Supply Management's assessment of the manufacturing sector, scheduled for Friday.