Intel Corp. declined after Salomon Smith Barney Inc. said sales will fall from this quarter to the next. Computer-related stocks led the S&P 500's drop as investors speculated that higher borrowing costs may discourage spending on new equipment.

"The economy is the entire battleground for the stock market," said Josh Brooks, head of value style funds at Delaware Investments, which oversees $84 billion in Philadelphia.

Shares may fall further if the economy doesn't "rebound as strongly as some people think," he said.

The S&P 500 fell 16.80, or 1.4 percent, to 1153.49, led by Bristol-Myers Squibb Co. and General Electric Co. The Dow Jones Industrial Average lost 123.24, or 1.2 percent, to 10,512.01. The Nasdaq Composite Index slid 43.11, or 2.3 percent, to 1837.76.

Fed policy makers yesterday dropped their 15-month view that weak growth is the biggest risk for the economy. They left their benchmark lending rate at

1.75 percent, a 40-year low.

Bonds fell today, pushing the yield on the benchmark 10-year Treasury note to 5.40 percent, close to an eight-month high. Interest-rate futures show investors expect the Fed to raise the overnight rate by a percentage point or more this year.

Goldman Sachs economists Binit Patel and Stephen Potter doubled their forecast for first-quarter economic growth to a

5 percent annual pace and said the Fed will likely raise rates to

2.50 percent in 2002, starting in June. Until now, Goldman hadn't forecast a rate increases this year.

While stocks rallied yesterday, "it often happens after a Fed meeting that investors think about it overnight and next day react differently," said Joe Stocke, who helps manage $1 billion at StoneRidge Investment Partners in Malvern, Pa.

Stocke, who is buying media stocks such as Viacom Inc. in hopes of a rebound in advertising revenue as the economy recovers, said higher rates don't pose a significant threat.

More than three stocks fell for every two that rose on the New York Stock Exchange and the Nasdaq Stock Market. Some

945 million shares traded on the Big Board by 2:45 p.m. New York time, down 3.3 percent from a week ago.

Among financial shares, whose profits may be hurt by higher interest rates, J.P. Morgan Chase, the second-largest bank, dropped 67 cents to $35.42, and charge-card issuer American Express lost 15 cents to $42.38. Mortgage originator Countrywide Credit Industries Inc. fell 71 cents to $42.98.

General Electric slid $1.38 to $38.52 after Pacific Investment Management's Bill Gross, manager of the world's biggest bond fund, said the firm sold its holdings of General Electric Capital Corp. short-term IOUs because the finance company's debt level is "extreme."

Lehman Brothers Holdings Inc. dropped 41 cents to $65.82. The fourth-biggest securities firm said profit fell 23 percent in the quarter ended February.