While Internet stocks soared on the promise of a strong Christmas, the broader market slumped amid fears of a more immediate event--a possible interest-rate increase next week.
The Dow Jones industrial average fell 125.70 to close at 10,991.38.
Broader stock indicators also ended lower. The Standard & Poor's 500-stock index fell 11.32, to 1332.84. The technology-dominated Nasdaq composite index contained its losses, dropping 13.49, to 2657.73, as Dell and many Internet issues rose sharply.
Concerns that the Federal Reserve will raise interest rates to prevent inflation from accelerating have hurt stocks and bonds over the past month, dragging market indicators well below the records reached July 16.
Now, analysts believe the market may not be able to sustain any new rallies until after Aug. 24, when the Fed will announce its decision on a rate increase.
Earlier this week, stocks did edge higher, helped along Tuesday by a report of a moderate increase in consumer prices that suggested the Fed may restrict its action to a quarter-percentage-point increase in short-term rates.
But today, with no new data to affect trading, buyers backed off.
Most new bets today were in favor of technology companies. Dell, the nation's largest direct seller of computers, rose 3-7/16, to 44-9/16, after beating earnings estimates.
Internet shares were mostly higher after Merrill Lynch analyst Henry Blodget raised his rating on several companies, saying they should flourish as people turn to the Web for holiday shopping. Amazon.com gained 3 7/8, to 113 1/8, and Yahoo jumped 6-3/16, to 145-1/16.
Blodget said investors who seek out the largest, most profitable Internet companies should be rewarded with higher share prices as inexpensive computers draw more consumers online.
Applied Materials, a maker of equipment used to make semiconductors, plunged 6-11/16, to 65-1/16. The company met analysts' expectations in its earnings report, released late Tuesday, but warned of slower growth in new orders.
Financial services companies, typically hurt by higher interest rates as lending volume shrinks, fell today. American Express dropped 3, to 137 1/4.
IBM was the worst-performing Dow component, finishing 4 5/8 lower at 123 7/8.
Weakness in the dollar also hurt stocks as the U.S. currency hit a six-month low against the Japanese yen. A weak dollar makes U.S. securities less attractive to foreign investors, who may determine that stocks or bonds in their own country offer better values.