Rising employment costs and a weaker-than-expected Gross Domestic Product figure conspired to drag the Dow Jones industrial average down 181 points to 10,790.97. The Nasdaq fell 66 points to close at 2,640.01.
The second-quarter GDP rose at a slower than expected 2.3 percent compared with a rise of 4.3 percent in the first quarter, lower than both the previous quarter and market expectations for the latest three months.
Meanwhile, the Employment Cost Index, a measure of employment costs particularly telling of labor inflation, jumped 1.1 percent in the second quarter. Economists were expecting an increase of less than 1 percent.
"People are getting out of securities. They're selling stocks. They're selling bonds. They're not buying gold. They're getting liquid," said Doug Myers, the vice president of equity trading at Interstate/Johnson Lane in Atlanta. "The prize fighter is bloodied and battered."
Rising employment costs are typically viewed as a harbinger of higher interest rates ahead.
Thursday's selloff was especially pronounced in the Internet sector, which enjoyed solid gains in Wednesday trading.
America Online Inc. (AOL) fell 3 3/4 to 99. Yahoo! Inc. (YHOO) shaved off 6 to 137 while Amazon.com Inc. (AMZN) and Excite@Home Corp. (ATHM) fell 4 3/16 and 3 3/8 a share, respectively. Lycos Inc. (LCOS) lost 2 13/16 to 43 1/8 and Infoseek Corp. (SEEK) tacked on 5/16 to close at 40 15/16.
Net2Phone Inc. (NTOP) hustled up 11 9/16, or 77 percent, to 26 9/16 in its initial public offering.
AT&T Corp. (T) closed off 1 1/2 to 53 7/16 after it posted second-quarter profits of 49 cents a share. MCI WorldCom Inc. (WCOM) closed off 2 9/16 to 84 1/8 after reporting second-quarter earnings right on target with First Call's prediction at 44 cents a share, or $857 million.
GTE Corp. (GTE) trimmed 3/4 to 74 9/16 and Sprint Corp. (FON) ended up 2 15/16 to 54 3/16.
Macromedia Inc. (MACR) shares fell 3 11/16 to 33 15/16 after it posted first-quarter earnings of $7.2 million, or 15 cents a share, outdoing First Call's estimate by a penny.
Ingram Micro Inc. (IM) posted second-quarter earnings of $51.7 million, or 35 cents a share Thursday, besting First Call's prediction by a penny. Its shares picked slid 2 9/16 to 29 3/4.
Despite the sharp selloff, Intel Corp. (INTC) managed to stand relatively firm, falling only 13/16 to 69 1/2. Advanced Micro Devices Inc. (AMD) tacked on 11/16 to 17 1/2 and Micron Technology Inc. (MU) shed 1 3/4 to 60.
Among widely held PC stocks, Dell Computer Corp. (DELL) ended off 1 1/2 to 41 1/4; Compaq Computer Corp. (CPQ) dropped 1 1/4 to 24 11/16; Apple Computer Inc. (AAPL) trimmed 1/2 to 53 7/8 and Gateway Inc. (GTW) fell 1 1/8 to 77 3/8.
Microsoft Corp. (MSFT) lost 3 1/16 to 86 15/16. Oracle Corp. (ORCL) added 3/8 to 38 1/16 and Sun Microsystems Inc. (SUNW) closed off 2 5/8 to 68 1/8.