Microsoft's plan for a stock buyback and an enormous dividend whet buyers' appetites a day ahead of the software bellwether's earnings announcement, and started the day off on a positive note. But trading was subdued by anxiety over earnings reports and worries that a drop in chip orders could portend declining capital spending later in the year.

Even Federal Reserve Chairman Alan Greenspan's mostly bullish testimony before a congressional committee was not enough to keep stocks in positive range.

"Technology stocks are really dragging the overall market down," said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. "But it's not tech alone. ... We're talking about a market that is more difficult to impress and very easily disappointed."

According to preliminary results, the tech-dominated Nasdaq composite index slumped 42.70, or 2.2 percent, to 1,874.37 — its lowest close since Oct. 24. The decline came even as Microsoft, its biggest component, posted a nearly 2 percent advance.

The other gauges posted their worst finishes since May. The Dow Jones industrial average fell 102.94, or 1 percent, to 10,046.13. The Standard & Poor's 500 index declined 14.79, or 1.3 percent, to 1,093.88. The Russell 2000 index, which tracks smaller company stocks, plummeted 15.62, or 2.8 percent, to 548.57.

Although most companies have matched or beaten earnings expectations in recent weeks, investors have been reluctant to make commitments because of less-than-stellar outlooks. Analysts say slowing profits, lower consumer spending and uncertainty about inflation, terrorism and the presidential election could combine for a lackluster third quarter.

Many had hoped the Fed chairman would give the market more direction when he spoke before the House and Senate this week. Greenspan offered an upbeat assessment of the economy, but his repeated promise that the central bank would raise rates as aggressively as necessary gave investors pause.

Underscoring the sensitivity to outlooks, a drop in orders at Texas Instruments Inc. — which matched estimates in earnings reported after the close yesterday — raised anxiety about chip stocks, and the Philadelphia Semiconductor Index plunged 3 percent.

Because semiconductors are used in virtually all tech products, any weakness in that industry is seen as spelling trouble for the other parts of the sector.