The Nasdaq composite index fell 78.14, or 2 percent, to close at 3,707.31, and the Standard & Poor's 500 index dropped 31.19 to 1,415.10.
The Dow fell 250.99, or 2 percent, to 10,480.13, led by retailers Wal-Mart and Home Depot. Tech stocks Hewlett-Packard and AT&T also posted losses.
Intel fell $2.13 to $119.06, while Microsoft gained 69 cents to $70.56. In a move to sway public opinion, Microsoft has been sending shareholders a letter signed by chairman Bill Gates urging them to contact government officials to express their presumed displeasure with the antitrust case brought by the Justice Department.
The CNET tech index lost 68.05 to 2,918.41, dragged down by Novell, eToys and Adaptec.
Losers edged out winners, with 81 of the 99 stocks in the index falling, 16 rising and two remaining unchanged.
Of the 18 sectors tracked, computer memory storage companies posted the sharpest drop, falling about 5 percent. PC software makers were the day's smallest losers, climbing a slim 0.2 percent.
Among members of the CNET tech index, eToys fell 84 cents, or 11 percent, to $7.09, while Adaptec fell $3.81, or 15 percent, to $21.13.
Novell was the biggest percentage loser on the Nasdaq Stock Market, falling $6.94, or 40 percent, to $10.63 on a volume of 91.9 million shares, more than 15 times its daily average. It was the most actively traded stock on the Nasdaq. The company warned investors yesterday that revenues and earnings for the second quarter will fall short of analysts' expectations.
On the positive side, shares of Lycos rose $6.69, or 16 percent, to $47.25. VoiceStream Wireless gained $3.25 to $100.63.
The Philadelphia semiconductor index fell 38.42 to 1,070.33, led by chip equipment maker KLA-Tencor, which lost $6.25 to $62.44.
The potential after-market performance of AT&T Wireless Group's initial public offering looks favorable to Wall Street, as more than a dozen analysts initiated coverage with target prices in the high $30 range. Its shares fell $1.25 to $31.
IBM is expected to unveil joint marketing and development agreements worth about $1 billion with software makers Tig, Yojna and S1, which develop software aimed at the financial services industry including banks, insurance companies and credit card organizations. IBM fell $3.38 to $108.
After years of watching the Net start-ups get the attention and Wall Street money, the tables may be turning: So-called old-economy companies are poised to pick through the wreckage and buy dot-coms to boost their own Internet plans.
The Dow may experience further turbulence tomorrow, as Walt Disney reported earnings for its second quarter after markets close today.