NEW YORK, JULY 5 -- The Dow Jones industrial average skidded 32 points today as Wall Street delivered its reaction to a proposal, now making the rounds in Washington, to tax the sale of stocks, corporate bonds and futures contracts to help ease the federal deficit.

"I think the catalyst for today's sell-off was probably the tax proposal," said chief trader George Pirrone of Dreyfus Corp., referring to a plan that has been considered and shelved periodically over the years and reportedly is being resurrected by Treasury Secretary Nicholas F. Brady and budget director Richard Darman to levy a tax of up to 0.5 percent on stock sales by individuals, corporations and tax-exempt institutions. Only U.S. Treasury instruments would be exempt under the plan, as reported in the Wall Street Journal.

Analysts stressed that buyers were scarce not only because of the post-holiday nature of trading, but also because widespread knowledge of the Bush administration proposal to tax the sale of various financial instruments had left the market in an ugly state of mind.

At the close, the Dow stood at 2879.21, down 32.42, on light volume of 128 million shares.

Norwood, Mass.-based data-communications specialist Microcom Inc. became the latest stock to take a serious tumble after announcing disappointing earnings results, dropping 35 percent at one point before recovering a bit to close at 6 1/8, down 2 5/8.

"This is a market where you don't want even a breath of bad news," said Thom R. Brown at Rutherford, Brown and Catherwood in Philadelphia. "You just don't get that sort of thing in a market that's undervalued or just generally depressed."

Avon Products dipped 3/4 to 37 in heavy trading as Chartwell Associates announced it will increase its stake to 26 percent of common stock from 19.8 percent. The move will trigger Avon's "poison pill" takeover defense, which allows shareholders to build their stake at half price to fight off a raider.

Genentech added 5/8 to 29 1/8 in heavy trading and Eli Lilly gained 1 1/2 to 86 1/4 following release of a study that found that elderly men can regain some of their youthful look from regular injections of a human growth hormone produced by both companies.

McDonnell Douglas climbed 1 7/8 to 40 7/8 amid reports that the U.S. and South Korean governments have resolved differences blocking the sale of McDonnell's F/A-18 fighters to the Asian ally.

The Dow transports dropped 9.49 to 1131.02 while the interest-sensitive and, lately, increasingly volatile utility index was dumped for a hefty 2.76 loss at 206.18 -- a far worse performance than that turned in by the U.S. 30-year Treasury bond, which eased only 6/32 as stocks closed.

Broad stock indexes posted sizable losses as well, in keeping with nearly 3-to-1 ratio of declining to gaining issues for much of the session. The Standard & Poor's 500 was down 4.48 at 355.68, the NYSE Composite dropped 2.16 at 194.45, the Value Line was down 2.05 at 285.18, the Amex Market Value fell 2.18 at 358.49 and the Nasdaq Composite was off 2.57 at 459.19.