"Another reckless, repulsive and horrible day," said Richard Peterson, a market strategist at Thompson Financial. "The markets are obviously spooked over inflation and productivity concerns."
The Nasdaq composite index fell 199.66, or about 6 percent, to 3,164.55, a record low for the year. The decline was the eighth-largest point drop in Nasdaq history and the ninth-lowest trading volume on the Nasdaq ever.
The Standard & Poor's 500 index dropped 26.86 to 1,373.86. The Dow Jones industrial average fell 120.28 to close at 10,422.27, weighed down by Intel and International Paper.
Analysts said investors are waiting for data that might provide a better picture of what the Federal Reserve will do to interest rates when it meets in June.
Economic numbers due out this week include gross domestic product and existing home sales, which will be released Thursday, and personal spending and personal income, which will be made public Friday.
Many analysts believe the markets will trade on a holding pattern unless some big news acts as a catalyst until the Fed meets in June and earnings for the second quarter come out in July.
"We're trading in a news vacuum (and) on low volume," said Bryan Piskorowski, a market strategist at Prudential. "There's not a lot of liquidity out there, so it doesn't take much to push us down."
Added Peterson: "We'll trade sideways right now unless a big merger or IPO happens or something else that's unexpected."
At the end of regular trading, Intel closed down $8.50 at $109.88, and Microsoft dropped $1 to $63.19. Intel CEO Craig Barrett said that the company's core business of computer chip-making will remain its main revenue earner in coming years, despite rapid growth in networking, communications and services businesses.
Other tech giants also posted losses. Cisco Systems fell $4.72 to $50.53, and Oracle dropped $5.19 to $62.63. Sun Microsystems fell $8 to $71.88.
The CNET tech index lost 122.27, or about 5 percent, to close at 2,395.89, dragged down by shares of Lexmark International. Losers edged out winners, with 89 of the 99 stocks in the index falling, 8 rising and two remaining unchanged.
Of the 18 sectors tracked by the CNET tech index, Internet e-tailers and server hardware companies posted the sharpest drops, falling 9 percent each. Computer services firms were the day's largest gainers, climbing a slim 0.32 percent.
Lexmark fell $8.25, or 10 percent, to $72.75 over worries that sales of laser printers are lagging.
eBay fell $20.19, or 15 percent, to $116, PMC-Sierra fell $22.06, or 14 percent, to $133.44, and Inktomi dropped $16.56, or 14 percent, to $101.50.
On the bright side, ADC Telecommunications held on to carve out a gain and rose $3.88 to $64.31. The company posted solid earnings last week.
The Philadelphia semiconductor index fell 72.92, or nearly 8 percent, to 869.74, led by chip designer Rambus, which lost $20.25, or almost 12 percent, to close at $150.63.
The Federal Trade Commission said it would embark on a major policy shift, asking Congress to enact stronger legislation to oversee online privacy.
Palm confirmed today that production of its popular handheld computers has slowed because of a shortage of key parts. The problem is related to the production of cellular phones, which contain the same memory and LCD screen parts used to make PalmPilots. Palm shares fell $1.69 to $22.31.