Inflation fears sent the Dow Jones Industrial Average scampering for cover, but the tech-laden Nasdaq Composite Index was putting on a brave face.

Two key economic reports released this morning incited a fresh round of interest-rate jitters and rattled the markets again. The closely watched

Employment Cost Index showed that pay and benefits of U.S. workers rose at the fastest pace in more than 10 years in the first quarter, while

gross domestic product, featured the strongest consumer spending in nearly nine years and robust business investment that implied optimism about continued growth rates ahead.

Things looked pretty ugly in the early going, with June

S&P 500

and

Nasdaq 100

futures going to limit-down. The Nasdaq Composite and the Dow quickly shed more than a 100 points in early trading. But after the initial shock wore off, stocks started fighting back. Lately the Dow was down 113, or 1%, to 10,833, off its low of the morning, while the Comp shook off the pressure and climbed, lately up 48, or 1.3%, to 3678.

Many market observers viewed the absence of serious damage as a very positive sign. "The important part is that even with the futures limit-down in the preopen, sellers were not cascading in or falling over themselves," said Bill Schneider, head of U.S. equity block trading at

Warburg Dillon Read

. Schneider also noted the absence of broad-based institutional selling.

Adam Wagner, president of

Wagner Hermann & Herbst

in Houston, echoed the sentiment. "I think this resilience is crucial to begin the big rally. This proves the market has a spine and will hopefully convince money on the sidelines to step up to the plate." Yesterday Wagner correctly predicted the selloff would be short, citing the market's short-term memory.

Interest-rate sensitive stocks, including financials and insurance stocks were taking the ECI news hard.

J.P. Morgan

(JPM) - Get Report

was down 3%, while

Merrill Lynch

(MER)

was off 4.8%. The

American Stock Exchange Broker/Dealer Index

was down 2.4% and the

Philadelphia Stock Exchange KBW/Bank Index

was down 3.3%.

Insurance giant

American International Group

(AIG) - Get Report

was off 2.9%, despite posting a better-than-expected 15% leap in operating profits. The

S&P Insurance Index

was down 3%.

Hardest hit among Dow components were

American Express

(AXP) - Get Report

,

General Electric

(GE) - Get Report

and J.P. Morgan.

Aether Systems

(AETH)

led the charge on the Nasdaq, soaring more than 20%, to 138 after last night posting in-line earnings and a rise in its subscriber base.

Macromedia

(MACR)

also sprinted after a better-than-expected earnings report. Shares were lately up 19 1/2, or 17.2%, to 133.

Nokia's

(NOK) - Get Report

news that pretax profit soared 76% was giving wireless stocks a boost. Nokia was rising 3 11/16, or 7.1%, to 55 9/16,

Ericsson

(ERICY)

popped 7 9/16, or 9.4%, to 88 1/2 and

Qualcomm

(QCOM) - Get Report

was up 4 3/4.to 102. .

Elsewhere in the wireless world

AT&T Wireless

(AWE)

was moving up 2, or 7%, to 31 1/2 in its trading debut after the record offering was priced at $29.50 a share. That rakes in a hefty $10.62 billion for parent

AT&T

(T) - Get Report

and makes the offering the largest new U.S. issue in history.

TheStreet.com Internet Sector

index was up 28, or 3.5%, to 832, boosted by strength in

Yahoo!

(YHOO)

and

CMGI

(CMGI)

.

The small-cap

Russell 2000

was up a fraction to 485, while the broader S&P 500 was down 9, or 0.6%, to 1452.

The 10-year Treasury was lately down 19/32 to 102, its yield rising to 6.22%.

Market Internals

Breadth was negative on the Big Board and the Nasdaq on moderate volume.

New York Stock Exchange:

1,030 advancers, 1,737 decliners, 670 million shares. 27 new 52-week highs, 49 new lows.

Nasdaq Stock Market:

1,569 advancers, 2,249 decliners, 868 million shares. 23 new highs, 97 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch, published separately.