After Tuesday's sharp gains, the tech-heavy Nasdaq composite index fell 36.24 to 3,333.39, while the Standard & Poor's 500 index inched down 8.18 to 1,421.22.
Tech stocks also took some value out of the Dow Jones industrial average, which fell 71.67 to 10,899.47. Hewlett-Packard declined $2.06 to $44.44, and AT&T fell $1.19 to $22.
For the month of October, the Dow rose 3 percent, while the Nasdaq fell 8 percent.
There were signs of optimism in the technology sector Tuesday, when the Nasdaq rose nearly 6 percent, but hopes of a rally faded. "The tech sector should not be rallying, in my opinion," said Richard H. Levy, head of block trading at CIBC World Markets, "the fundamentals continue to deteriorate."
Levy said most investors have lost their appetite for risk and would rather choose slow but predictable growth stocks like Colgate rather than highfliers such as Sun Microsystems. Sun trades at more than 80 times earnings, which requires "explosive" earnings growth to justify its valuation.
"Right now, with the end of the year (approaching), people want steady, predictable growth," said Levy. "If your portfolio has sucked wind, you can't afford to take big risks in November and December."
Levy expects a technology rally in January as fund managers jump back into the market.
WorldCom fell $4.81, or 20 percent, to $18.94 and traded as low as $18.31, a new 52-week low compared to a high of $61.33. Volume reached nearly 195 million shares, about six times the stock's daily average, making it the most active stock on the Nasdaq.
The long-distance phone company lowered its fourth-quarter forecasts and 2001 profit and revenue growth expectations because of higher costs and lower phone prices.
The Clinton, Miss.-based company also announced that it will create two tracking stocks. One stock will cover the company's data, Internet hosting and international ventures, while the other stock will cover consumer, small-business and wholesale long-distance as well as dial-up Internet service.
Shares of Intermedia Communications, which WorldCom agreed to buy in September for $6 billion in stock and debt, fell $4.56, or nearly 21 percent, to $17.56.
Some economic news from the government gave investors a reason to cheer. Manufacturing activity in the United States fell for the third straight month, providing yet another indication that the U.S. economy is cooling.
The National Association of Purchasing Managers said its purchasing index fell to 48.3 percent in October, slightly worse than the 49.9 percent level recorded in September. October's figure also was below the analyst forecast of 49.5 percent.
A slowing economy makes it less likely that the Federal Reserve will raise interest rates, an option it has exercised six times since June 1999 to dampen consumer spending and control inflation. Climbing interest rates make borrowing money more expensive and reduce corporate profits.
The CNET tech index lost 45.98 to 2,653.17. Decliners led advancers, with 51 of the 96 stocks in the index falling, 40 rising and five remaining unchanged.
Of the 18 sectors tracked by CNET Investor, communication services companies posted the sharpest drops, falling nearly 4 percent. Wireless, semiconductor, and server hardware sectors followed closely behind, sliding 3 percent each. Internet retailers were the day's largest gainers, climbing nearly 3 percent.
Shares of Altera fell $8.38, or 20 percent, to $32.56 after the maker of programmable computer chips announced that it anticipates fourth-quarter sales on the lower end of its forecast.
Customers such as Cisco Systems and Lucent Technologies may be overstocked after building inventories based on optimistic sales forecasts, analysts said.
Among members of the CNET tech index, Level 3 Communications fell $5.13, or nearly 11 percent, to $42.56. The telecommunication service provider set a new 52-week low of $41.63 compared to the stock's high of $132.45.
The fallout from the Altera news spilled over into the chip sector. The Philadelphia semiconductor index fell 27.83, or about 4 percent, to 714 led by Altera and Lattice Semiconductor. Lattice lost $4.19 to $25.
Virata rose $4.63, or about 24 percent, to $24 and traded as high as $25.25. Cisco Systems will integrate the chipmaker's EmWeb software into its IOS software, Virata said in a statement.
Internet incubator and operating company CMGI rose $3.81, or about 23 percent, to $20.69. Navisite, a CMGI subsidiary, also gained $1.88, or 18 percent, to $12.06.