The Nasdaq composite index fell 112.84, or nearly 3 percent, to 3,981.61, and the Standard & Poor's 500 index dropped 15.90 to 1,464.29.
The Dow Jones industrial average rose 48.44 to close at 10,685.12.
Among widely held tech issues, Intel closed down 19 cents at $138, and Microsoft fell $1.75 to $70.56.
"I don't know if you could call it the dog days of August a week early," said Tony Cecin, head of trading at US Bancorp Piper Jaffray. "It was a very lackluster session, summarized by some profit taking."
Todd Clark, head of listed trading at WR Hambrecht, said the markets may stay sluggish because of the "lack of a catalyst this week until the employment numbers come out" on Thursday. "Investor malaise might be a good way to put it."
The Nasdaq's volume came in on the light side at 1.5 billion shares, while just 869 million shares exchanged hands on the New York Stock Exchange. "Everyone in New York is down at the Hamptons," joked Cecin.
The markets have not reacted to some strong earnings reports from companies in the S&P 500. According to First Call/Thomson Financial, the average total earnings of companies have increased 17.2 percent from the same period of 1999.
"That's way above the trend line of the last four years," said Tony Crooks, a research analyst at First Call. He added that earnings have grown 12 percent year over year during that time.
More than half of all the companies in the S&P have reported second-quarter results, and several more are expected to report this week.
Wall Street's lack of enthusiasm may be a result of investors' pessimistic outlook toward the remainder of the year. First Call predicts that third-quarter earnings will grow 17.5 percent from last year, but that fourth-quarter earnings will increase just 16 percent from 1999.
First Call also predicts that annual earnings in 2001 will increase 15.9 percent from this year. Some economists speculate that the economy has not yet seen the full effect of all the Federal Reserve's interest rate hikes, which will surface in the first half of 2001 and may further pinch earnings growth.
Tom Glavin, chief investment strategist at Donaldson Lufkin & Jenrette, said recent evidence of an economic slowdown may indicate that the Federal Reserve is done raising rates for now.
He also said that if historical trends hold true, this event might be good for the technology sector. "When the Fed stops raising interest rates, there's a shift from value to growth" sectors, he said. Telecom and wireless stocks in particular might benefit from this phenomenon.
"The economy is moderating. Inflation is being policed. So we think the Fed is done," Galvin said in a conference call today. He advised caution in the near term, but he predicted the Nasdaq will hit new highs by the end of the year and the S&P 500 will increase 10 percent to 15 percent from its current level.
The CNET tech index lost 53.56 to close at 2,863.57. Losers edged out winners, with 72 of the 97 stocks in the index falling, 24 rising and one remaining unchanged.
Nearly all of the 18 sectors tracked fell today. Internet e-tailers along with PC hardware makers posted the sharpest drops, falling about 6 percent and 5 percent, respectively. Semiconductor equipment makers were the day's only gainers, climbing a slim 0.62 percent.
Among members of the CNET tech index, desktop computer makers posted losses.
Dell Computer fell $5.94 to $46.44; Apple shed $4.88 to $48.69; and Hewlett-Packard dropped $5.19 to $118.81. Studies by two market research firms said worldwide shipments of personal computers rose slightly less than had been forecast in the second quarter as consumer sales slowed and shortages of microprocessors hampered supply.
Investors greeted earnings news from Priceline.com by selling shares. The name-your-own-price company's sales tripled, but sales rose less than expected. The stock fell $8.94, or 22 percent, to $31.13 on a volume of 15.4 million shares, more than six times the stock's daily average.
Investors also reacted harshly to the $50.7 billion merger between VoiceStream Wireless and Deutsche Telekom. VoiceStream shares fell $21.25, or 14 percent, to $128.50, while Deutsche dropped $6.50 to $45. VoiceStream volume topped 17.3 million shares, nearly nine times the stock's average daily volume.
On the upside, computer chipmaker Xicor was the biggest percentage gainer on the Nasdaq. The shares jumped $3.69, or 55 percent, to $10.38 on a volume of 14.3 million shares, more than 20 times the stock's average daily volume. The company unveiled a new line of chips that will be used for fiber optic equipment.
The Philadelphia semiconductor index inched down 7.22 to 1,075.29, led by chip-test equipment maker Teradyne, which lost $3 to close at $65.75.