The Nasdaq fell 172.63, or 4 percent, to close at 3,785.45, and the Standard & Poor's 500 index dropped 21.96 to 1,446.29.
The Dow dipped 80.66 to 10,731.12, led by AT&T and SBC Communications. The local phone company fell $5.88 to $44.63.
Dow components Microsoft and Intel dropped. The software giant slid $3.56 to $69.88. Intel fell $5.94 to $121.19 as Needham reiterated its "avoid" rating on the chipmaker.
Vixel, a data storage company, was the biggest percentage gainer on the Nasdaq Stock Market. Its shares jumped $5.88, or almost 73 percent, to $13.94.
Pacific Sunwear was a big loser on the Nasdaq after Credit Suisse First Boston cut the company from "strong buy" to "buy." Its shares fell $9.31, or 26 percent, to $26.50 on a volume of 10 million shares, more than 10 times the stock's daily average.
The CNET tech index lost 129.55 to 2,986.95, dragged down by shares of Citrix Systems, Adobe and AT&T. Losers edged out winners, with 92 of the 99 stocks in the index falling and seven rising.
Of the 18 sectors tracked, Internet services and communications services companies posted the sharpest drops, falling about 7 percent and 6 percent, respectively. PC hardware makers were the day's smallest losers, slipping 1 percent.
Among members of the CNET tech index, Citrix fell $7.38 to $48.63, Adobe dropped $15.19 to $115.50, and AT&T slid $7.13, or almost 15 percent, to $41.88. AT&T said it expects lower earnings than previously forecast and that it will cut about 6,200 jobs.
On the upside, shares of Cabletron Systems gained $2.06 to $26.81. The company said it received an additional investment from a venture capital firm.
The Philadelphia semiconductor index fell 55.31, or nearly 5 percent, to 1,108.75, led by designer Rambus, which lost $23.44, or 10 percent, to $209.50.
Wells Fargo introduced automated teller machines that let customers do their banking while viewing news headlines from MSNBC.com, video advertisements and movie trailers.
Rival hotel giants Marriott and Hyatt said they will form a separate company to launch an online marketplace connecting buyers and suppliers in the hospitality industry. Shares of Ariba, which also is set up a marketplace for the travel and hospitality industry, fell $9.38, or 11 percent, to $74.56.