Analysts said a U.S. Supreme Court ruling that could force drug manufacturers to lower prices in Maine also prompted investors to cash in profits after several weeks of gains. Light volume accentuated price swings.

"The concern is that foreign investors could be selling U.S.-based holdings and going overseas with their investment capital," said Jim Russell, director of core equity strategy for Fifth-Third Bank in Cincinnati.

"We also think the market is down because it has had such a strong run-up post-war," he added. "The market is ready for a pause ... We would expect a pullback of modest proportions over May and June."

The Dow closed down 185.58, or 2.1 percent, at 8,493.39. It was the biggest point decline since March 24, when the blue chips lost 307 points. The Nasdaq composite index fell 45.76, or 3 percent, to 1,492.77, also the biggest drop since March 24. The Standard & Poor's 500 index dropped 23.53, or 2.5 percent, to 920.77.

The dollar slid to multiyear lows against the euro and the yen after U.S. Treasury Secretary John Snow over the weekend called the dollar's recent losses "fairly modest." He added that market fundamentals should determine the dollar's value.

Disappointing retail sales also weighed on stocks.

Lowe's dropped $4 to $40.30 after the nation's second-largest home improvement chain reported first-quarter earnings that beat analysts' expectations by a penny; however, its same-store sales fell below the company's estimates.

Home Depot, Lowe's rival, fell on the news, dropping $1.12 to $28.07; the company reports its quarterly earnings tomorrow.

The latest report on economic activity failed to soothe investors. The Conference Board said today that its Index of Leading Economic Indicators rose by 0.1 point last month to 110.6, suggesting tepid post-war growth.

Stocks have surged in recent weeks after the end of the war with Iraq and an encouraging first-quarter earnings season. But analysts have cautioned that stocks would likely see declines on profit-taking unless investors see strong signs of an improving economy.

Drug stocks were among the big losers today after the Supreme Court ruled Maine could begin a novel plan to force drug manufacturers to lower prices on prescription drugs; however, the court cautioned that the program might not survive future legal challenges.