The tech-heavy Nasdaq lost 4.47 to close at 4,958.56, while the Standard & Poor's 500 index fell 3.63 to 1,523.86.
The Dow lost 86.87 to close at 11,025.85, led by Microsoft, which fell $7.63 to $104.06 on volume of more 55 million shares, making it the most active stock on the Nasdaq.
Microsoft fell on reports that government lawyers did not accept the company's offer to settle its antitrust lawsuit on the eve of a judge's ruling on the case.
Intel closed up $3.63 at $142.69 after PaineWebber launched coverage of the company with an "attractive" rating.
The CNET tech index posted a modest 28.41 gain to close at 3,568.22, led by shares of Qwest Communications International and Unisys.
Winners outnumbered losers, with 61 of the 100 stocks in the index rising, 35 falling and four remaining unchanged.
Of the 18 sectors tracked, server hardware companies posted the largest gains, climbing about 4 percent. PC software makers were the day's biggest losers, falling 4 percent.
Incara Pharmaceuticals was the biggest percentage gainer on the Nasdaq. It jumped $3.69, or 101 percent, to $7.31 as volume topped 11.9 million shares. The company will receive a U.S. patent on a cell treatment for patients suffering from liver failure or certain inherited metabolic diseases.
OpenTV shares fell after the developer of TV set-top box software announced it will buy Spyglass for $2.5 billion in stock. OpenTV shares fell $39.97, or 23 percent, to $129.03 on volume of 2.5 million shares. Spyglass jumped $12.50, or 17 percent, to $82.38.
Qwest rose $4.38 to $50.88 after the company said it formed a multiyear Web hosting agreement with IBM, valued at $5 billion, to provide businesses with hosting services from 28 new data centers. IBM rose $6.19 to $126.81.
Unisys shares leaped $2.56, or 10 percent, to close at $27.88 after a report that Deutsche Telekom wants to buy the computer services company.
Altera fell $2.38 to $93.50. Merrill Lynch reiterated its "accumulate" rating on the stock. VoiceStream Wireless and Inktomi also posted losses. VoiceStream fell $8.50 to $133.50; Inktomi fell $6.06 to $210.75.
The Philadelphia semiconductor index rose 17.96 to 1,305.46, led by Xilinx, which rose $4.19 to close at $86.81.
Yahoo shares rose $6.75 to $200.75. The leading Web portal is preparing to launch a service that will allow people to store and view digital photos.