Stocks fell hard for a second day yesterday, with the Dow Jones industrial average losing more than 120 points after a surprisingly weak...

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NEW YORK — Stocks fell hard for a second day yesterday, with the Dow Jones industrial average losing more than 120 points after a surprisingly weak reading on the service sector of the economy raised concerns about the continuing impact of higher energy prices.

The Dow fell 123.75 to 10,317.36. The decline followed a drop of 94.37 on Tuesday.

Microsoft, one of the 30 Dow stocks, sank 31 cents to close at $24.67 a share. Boeing, also a Dow stock, fell 90 cents to $67.05.

Broader stock indicators were lower. The Standard & Poor’s 500 index fell 18.08 to 1,196.39, and the Nasdaq composite index fell 36.34 to 2,103.02.

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Equities opened lower after Tuesday’s sell-off, then fell further when the Institute for Supply Management reported that its nonmanufacturing business index, which measures the service sector, dropped to 53.3 in September from 65.0 in August.

While any reading above 50 indicates the economy is expanding, the sharp drop in the index was unexpected, following a strong report in manufacturing earlier this month. The service sector includes business activity in banking, retail, insurance, tourism and education.

Yesterday’s reading, which indicated supply managers were worried about energy costs, spooked investors already nervous about the effects that rising oil and gas prices will have going forward.

But yesterday, a barrel of light crude oil settled at $62.79, down $1.11, on the New York Mercantile Exchange.

The market was still mulling Tuesday’s comments from Dallas Federal Reserve Bank President Robert Fisher, who said inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed’s short-term interest rate increases would continue. The higher prices for energy have been filtering into the rest of the economy.

Investors are also jittery about earnings season, which officially starts Monday. Some companies such as Clorox have already begun to warn their earnings will not meet expectations.

“We need to get [earnings season] out of the way and see how companies are doing,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.

Investors are facing a Wall Street nightmare: a slower economy and higher interest rates.

Those looking for signs of a slowdown are finding them. For instance, home-equity lending at banks has slowed from a peak rate of $2 billion to $3 billion a week to “a trickle” of $100 million in the past several weeks, according to a Citigroup report.

“There’s just a lot of nervousness and crosscurrents,” Berman said.

One example: Homebuilder Hovnanian Enterprises fell $1.05 to $48.23 despite its report that new contracts rose 61.5 percent in September.