Erasing most of the positive momentum they had last week, technology stocks languished for a second straight session, with losses steamrolling as the day progressed.

The

Nasdaq

closed down 129.82, or 3.1%, at 4013.36.

TheStreet.com Internet Sector

index closed down 22.74, or 2.6%, at 846.07. A downgrade of

Micron Technology

(MU) - Get Report

put the tech sector on the defensive early, and the Nasdaq reached its session low into the close.

While much of tech had a rough day, it was even rougher for

MP3.com

(MPPP)

. A

U.S. District Court

judge in New York

ruled that the online music company's copyright violation against

Universal Music Group

was willful, and it could be forced to pay as much as $250 million, or $25,000 for each of the 10,000 CDs that Universal contends were illegally copied and included in the MP3.com service. Before trading was halted in the stock, MP3 was down 69 cents, or 8.0%, at $7.88.

But other online music companies benefited from MP3.com's misery.

Liquid Audio

(LQID)

added $1.69, or 25%, to $8.50, while

EMusic

(EMUS)

closed up 19 cents, or 18%, at $2.44.

Profit-taking was in order for many of the business-to-business stocks. But don't cry for them, or investors, as many of these stocks have had huge run-ups of late. Among the decliners,

i2 Technologies

(ITWO)

dropped $15.19, or 9%, to $160;

Commerce One

(CMRC)

fell $6.56, or 9.5%, to $62.69;

FreeMarkets

(FMKT)

slipped $10.94, or 12.5%, to $76.63; and everyone's favorite,

Ariba

(ARBA)

declined $10.13, or 6%, to $156.31.

While both

Ameritrade

(AMTD) - Get Report

and

E*Trade

(EGRP)

benefited from upgrades from

Credit Suisse First Boston

(see details below), only Ameritrade was able to hold much of its gains. It closed up $2.19, or 11.7%, at $20.81, while E*Trade ended up 31 cents, or 1.7%, at $18.38, though it traded as high as $20.19.

And it was a mixed day for a couple of traditional Internet plays.

Yahoo!'s

(YHOO)

struggles continued; it closed down $5.06, or 4.3%, at $112.06.

Amazon.com

(AMZN) - Get Report

ended up 19 cents, or 0.4%, at $45.88, though it traded as high as $49.63 after some friendly words from

Lehman Brothers

.

2:03 p.m.: Comp Down, but Silver Lining Seen

The

Dow and

Nasdaq have alternated as leaders of the stock market over the past couple of weeks. Today, the Dow took the helm, while the Nasdaq struggles behind.

In recent trading, the Dow was up close to 81 points. The Nasdaq, was off 86.7 to 4056.4.

Despite the losses, technical analysts remain mostly positive on the Nasdaq. But it still needs to clear a key area before it can extend its recent up move. The Nasdaq traded as high as 4260 on Friday, stopping just short of the 4289 high from July 17. That was the highest the Nasdaq had traded since April 10.

Over at our sister site,

RealMoney.com

, Gary B. Smith noted that the Nasdaq remains in an uptrend. But it "failed its moment of truth" at the 4289 level, leaving the index in "watch mode."

And Helene Meisler, also a technician for us at

RealMoney.com

, went in-depth on yesterday's price action and found it to be healthy--even though the Nasdaq ended lower. We'll have to see if she is so positive after a second day of losses.

"Even on the Nasdaq the statistics held up pretty well. Let's just compare last Thursday's plus 102 on the Nasdaq to Tuesday's down 90 because it's roughly the same point move up as it is down. The breadth of the up move on Thursday (using the upside/downside volume numbers as a guide) was a positive 730 million shares. Tuesday's down day found that statistic at only a minus 282 million shares. That is not a bad day in the market, it is simply a relief of the excess. It is the market's way of shaking out the weak holders."

Meisler noted that traders were buying stocks that were out of favor and selling those that had rallied. That strategy was in full force today in the business-to-business sector, which has been on a nice run of late without benefit of positive fundamentals other than

expectations of a solid third quarter.

Among the leading decliners,

FreeMarkets

(FMKT)

was off 7.9%, though the creator of business-to-business auctions had rallied close to 70% from Aug. 23 until yesterday.

I2 Technologies

(ITWO)

was down 7.5%. The supply chain software maker had rallied around 70% in the past month. And

E.piphany's

(EPNY)

5% loss today paled in comparison to the 30% gain the maker of customer interaction software has had since Aug. 24.

Yahoo!'s

(YHOO)

selling respite lasted but one day. The Internet portal was down 3.2% today. Gains yesterday in Yahoo! helped contribute to a rally among many traditional Internet stocks and filtered through the sector.

But

Amazon.com

(AMZN) - Get Report

was building on yesterday's 10% gain, up 4.8%. The online retailer was benefiting today from a positive research note from

J.P. Morgan

. Analyst Tom Wyman wrote that the stock was just beginning to start its run up to the holidays. Note that Wyman typically

spouts good things about Amazon (though J.P. Morgan has not done underwriting for the company).

CNet

(CNET) - Get Report

was struggling for the second straight session, down 5.2%. Yesterday, CNet said it had received

antitrust approval for its proposed acquisition of

Ziff-Davis

(ZD)

.

10:56 a.m.: Micron's Downgrade Weighing Down Tech Stocks

Internet stocks outperformed the rest of the technology sector yesterday, but were not as strong early in today's session.

In recent trading, the

Nasdaq was down 43 to 4099.

TheStreet.com Internet Sector

index was down 11 to 858. A downgrade of

Micron Technology

(MU) - Get Report

that followed a downgrade of

Intel

(INTC) - Get Report

yesterday was putting some pressure on tech stocks.

Financial stocks were benefiting from today's announced buyout of

Associates First Capital

(AFS)

by

Citigroup

(C) - Get Report

and news that Germany's Deutsche Bank is in talks to buy U.S. investment bank

J.P. Morgan

(JPM) - Get Report

. But a couple of online brokerages also were rallying behind upgrades from

Credit Suisse First Boston

. Analyst Jim Marks upgraded both

Ameritrade

(AMTD) - Get Report

and

E*Trade

(EGRP)

to buy from hold, with $35 price targets on both. Marks noted that it was the first time in nearly two years that he has had a buy rating on Ameritrade and the first time in over a year that he had a buy on E*Trade.

Marks indicated that both stocks were "very inexpensive" on two key metrics. First, he noted that Ameritrade was trading at $2,600 an account compared to its peak level of $25,000 in April 1999, while E*Trade was trading at $1,888 an account compared to $25,000 at its peak. In addition, he notes that Ameritrade acquires accounts at an average cost of roughly $250 and earns $207 annually in income before marketing expenses. For E*Trade, cost to acquire accounts averages roughly $300, which generate about $250 in income before marketing expense and taxes, and have experienced less than 10% attrition.

Marks noted that some of the weakness in the online brokerage stocks in the past year came on concerns over the entry into the field from traditional brokers who began offering online services, but impact has been minimal.

Not participating in the rally was

Knight Trading Group

(NITE)

, which was down 2.9%.

Robertson Stephens

reduced earnings estimates on the market maker "to reflect a more normalized operating environment."

Analyst Scott Appleby lowered his fourth-quarter earnings estimates to 58 cents from 67 cents and 2001 earnings estimates to $2.60 from $3.25. However, Appleby also wrote that Knight's fundamentals should improve in the fourth quarter versus the slower third quarter, and that as Nasdaq volumes increase, as they traditionally do in the December quarter, Knight's stock price should follow suit. And while Appleby noted that he anticipated some short-term weakness in the stock to reflect his earnings adjustment, he viewed such weakness as a buying opportunity.

Elsewhere,

MP3.com

(MPPP)

was up 0.7%. A judge is expected to rule today on a request by

Universal Music Group

for $450 million in damages from MP3 for copyright violations. MP3 has settled copyright cases with four other major record companies, but not Universal.

In somewhat related news,

Yahoo!

(YHOO)

has signed a deal with the

Recording Industry Association of America

that establishes terms and conditions for music Webcasts on Yahoo!.

Among business-to-business stocks,

Ventro

(VNTR) - Get Report

was down 2.4%.

Credit Suisse First Boston

analysts noted that Ventro announced it had canceled its analyst day scheduled for Sept. 13. The company said it was canceling the meeting upon the advice of its lawyers based on the

Securities Exchange Commission's

fair disclosure guidelines. But the analysts indicated that the cancellation did not presage any negative new information, though they continue to recommend that investors stay on the sidelines because Ventro is in the process of reformulating its business model.