The Nasdaq composite index fell 132.59, or 3 percent, to 3,709.64, extending its decline for the week to 9 percent. The Standard & Poor's 500 index dropped 21.97 to 1,427.65.
The Dow Jones industrial average dipped 71.42 to 10,514.71.
Investors were spooked today by a government report that revealed the nation's gross domestic product (GDP), the total output of goods and services, grew 5.2 percent in the second quarter, compared with a 4.8 increase in the first quarter. The number was higher than some economists and analysts had expected.
The number could indicate the economy is growing at a rapid pace, possible prompting the Federal Reserve to boost interest rates next month.
"The higher-than-expected GDP number raised concern that the Fed won't stand pat in August," said Todd Clark, head of listed trading at WR Hambrecht.
Unimpressive earnings news added to investor concerns. "The earnings news has not prompted people to become aggressive buyers," said Clark.
However, there were indications the economy is slowing. Consumer spending increased 3 percent, compared with last quarter's increase of 7.6 percent. The rise was the lowest since the fourth quarter of 1997 and could be a sign that consumers are scaling back their spending.
Business investment in software and equipment increased 21 percent compared with last quarter's jump of 20.6 percent and is the highest since a 24 percent hike in the first quarter of 1998. "Business investment translates into productivity gains," said Greg Mount, an economist at BankOne, "so there's a payoff down the road."
Lastly, inventory accumulation rose to $60.3 billion from a previous $36.6 billion. Businesses "accumulate inventory in one quarter, then give it back in the future," said Mount.
Peter Kretzmer, an economist at Banc of America, wrote in a research note that the "hedging against rebounding sales led to faster inventory accumulation (by businesses). If demand remains moderate, this points to slower production growth ahead."
On the downside, soaring imports led to a widening trade gap. Imports rose 17 percent, the highest since the third quarter of 1997, while exports increased 7.3 percent.
Many economists said today's economic news will not spark any radical revisions of the Fed's interest rate policy. "The report will not cause the Fed to change course," said Mount, who believes investors can expect at least one interest rate hike later this year.
The CNET tech index inched down 65.17 to 2,688.54. Decliners beat advancers, with 71 of the 97 stocks in the index falling, 24 rising and two remaining unchanged.
All of the 18 sectors tracked took a hit. Makers of computer network equipment posted the sharpest drop, falling about 6 percent, followed by makers of computer peripherals, which fell nearly 5 percent.
Shares of American Power Conversion took a beating from lower-than-expected earnings news. The network equipment maker fell $21.50, or 46 percent, to $25 after announcing profit for the rest of the year will not meet analysts' expectations. Volume topped 14.6 million shares, more than seven times the stock's daily average.
Cox Communications' shares also fell on earnings woes. The stock dropped $6.81, or about 16 percent, to $37.06 after the company said cash flow this year will miss the cable-television provider's previous forecasts as it faced more competition in the second quarter from telephone companies.