Arduino uno serial comm with serial terminal problem

Hi,
I have a usb to rs232 adapter. I connected the TX pin of the arduino to the RX pin (pin 2) of the adapter and connected the signal ground pin (pin 5) of the adapter to ground pin of the arduino. I started the AVR Terminal (http://www.battledroids.net/downloads/AVRTerminal.html) program and started a serial communication at 9600 baud rate with COM port adapter with the following (default) settings data bits: 8, parity: none, stop bit: one and flow control: none. I have the following codes loaded on the Arduino.

void setup()
{
  Serial.begin(9600); 
}

void loop()
{
  Serial.print('c'); 
  delay(500);
}

I should get cccccccccccccc... on the terminal window, instead I get NNNNNNNNNNNNNN... But if I select the COM port of the Arduino I get the correct chars. What could be wrong? Any idea how to fix this?