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Interest rate scare hits tech stocks

Tech stocks are among those struck hardest by the fear that the Federal Reserve would raise interest rates to slow the economy?s growth.

Tech stocks were among those hit hardest today by the fear that the Federal Reserve would raise interest rates to slow the economy's growth.

The Nasdaq fell nearly 48.64 to close the day at 1,820.31, down almost 49 points from Friday's close of 1869. The Dow Jones Industrial Average sunk below the 9000 point after it dropped 146.98 points to close at 8,917.63. The drop follows a weak market on Friday, when the Dow fell 79 points, to close at 9,064.6.

This concern over the potential rise in interest rates is a shift away from corporate earnings, which was where Wall Street's attention was focused last week.

"The situation most people are going to be watching right now is what happens with interest rates," said Joseph Barthel, chief investment strategist at Fahnestock & Co.

Concerns that borrowing costs may be headed higher began creeping back into the market after several Federal Reserve policymakers warned recently of building price pressures. The Fed's policy-setting committee is due to meet next on May 19.

Stock investors have also been watching with a worried eye as the benchmark long bond yield edges up toward the 6 percent level.

"If you go through 6 percent, that will spook the market," Barthel said.

The yield on the 30-year Treasury bond ended Friday at 5.95 percent.

The key reports for the week will be the government's initial estimate of first-quarter gross domestic product and the employment cost index, both due Thursday morning.

Microsoft continued its slide today, dropping 1.81 to close at 90.31; Intel dropped 2.06 to close at 80; and IBM lost 2.06 points to close at 115.31.

Internet companies--whose stock recently reached record highs after a long run-up--saw their stocks hit hard in early trading.

Some of the big losses included CDnow, whose stock fell almost 14 percent to close at 24.19; Concentric Network dropped 6 percent to end the day at 21.25; DoubleClick lost 13 percent in early trading before recovering to close at 34.53, down only 2 percent; and Onsale fell almost 8 percent to close at 24.

The shift toward interest rate concerns, which was reportedly made at the March 31 meeting of the policy-making Federal Open Market Committee, shows the central bank believes its next move on interest rates is more likely to be higher than lower.

Prominent Fed watchers said there have been leaks from the Fed recently indicating that one of central bankers' key concerns is high prices of assets such as stocks and real estate.

Reuters contributed to this report.