SAN FRANCISCO -- Amid a lot of background noise, and a day ahead of an expected Federal Reserve rate hike, the bottom line is that the trend evident last week re-emerged today. That is, valuations matter.

It would be a gross oversimplification (as well as an increasingly tired trope) to say Old Economy stocks benefited at the expense of New Economy stocks. Still, the

Dow Jones Industrial Average

rose 85.01, or 0.8%, to 10,680.24 while the

Nasdaq Composite Index

shed 187.64, or 3.9%, to 4610.49 -- suffering the third-worst point decline in its history.

The final tallies set up the potential for deliciously cliched headline possibilities for tomorrow's newspapers and tonight's TV broadcasts. But -- as is often the case -- a casual glance does not tell the whole story.

Notably, the Dow's gains were inspired largely by technology components

Hewlett-Packard

(HWP)

,

Intel

(INTC) - Get Report

and

IBM

(IBM) - Get Report

, rather than Old Economy cyclicals or consumer-focused names.

Other Dow movers included

AT&T

(T) - Get Report

on the upside while

ExxonMobil

(XOM) - Get Report

was the biggest drag, falling 2.9% as crude prices declined.

Meanwhile, beyond tech bellwethers, the mood in the sector was depressed, if not worse.

A major catalyst for the Nasdaq's retreat was

MicroStrategy

(MSTR) - Get Report

, which tumbled 61% after saying it would

restate its financial results for 1999. The Internet software developer said it was changing the way it recognized revenues for certain contracts following guidance by the

Securities and Exchange Commission

.

Concerns about revenue recognition go beyond MicroStrategy's specific case, but that firm's announcement heightened questions about using price to revenue as the "valuation standard" for Internet stocks, according to Barry Hyman, chief market strategist at

Ehrenkrantz King Nussbaum

.

It's the definition of standards here that

is very concerning," Hyman said. MicroStrategy's response to the SEC "changes the parameters. I don't look for a major Internet collapse, but we may have to go down somewhat more to wash out weaker ones."

Internet stocks were further saddled by an article in

Barron's

that questioned the ability of many names in the sector to maintain operations at current cash-burn rates.

TheStreet.com Internet Sector

index plummeted 87.78, or 6.9%, to 1184.83, although few DOT components were mentioned in the survey, which was contradicted and criticized by many.

Among big Net names in the news,

America Online

(AOL)

added 3.4% after inking a

joint venture with

PurchasePro

(PPRO)

, which fell 14.9%.

Also,

priceline.com

(PCLN)

fell 14.4% after (another)

Barron's

article suggested the company could face increasing competition from a proposed online venture by the hotel industry.

Other so-called highfliers in the tech and biotech sectors also got battered today as momentum continued to show its power to move stocks down as well as up.

"It's a potential rout on the Nasdaq," Hyman said. "Clearly the winners are blue-chips because they represent actual earnings."

The strategist noted a "flight to quality" within the tech sector, as evidenced by strong gains from bellwethers such as Intel and

Dell

(DELL) - Get Report

-- which received positive comments from

Salomon Smith Barney

. Other notable tech gainers included

TheStreet Recommends

Micron Technology

(MU) - Get Report

and

Motorola

(MOT)

. While the

Nasdaq 100

shed 4%, the older-tech

Morgan Stanley High Tech 35

slid just 1.2%.

Among big losers today were tech names such as

Infospace

(INSP) - Get Report

,

Adaptive Broadband

(ADAP) - Get Report

and

Rambus

(RMBS) - Get Report

, as well as biotech plays such as

Abgenix

(ABGX)

and

Protein Design Labs

(PDLI) - Get Report

. The

American Stock Exchange Biotech Index

shed 11.8%.

Few Alarm Bells Ring

Despite the Comp's big decline, most traders took a somewhat relaxed attitude about the session.

"These are the markets we've been in," said Sam Ginzburg, senior managing director of equity trading at

Gruntal

. "This is what the Comp does. It's not something that's alarming me."

Like many, Ginzburg noted trading volumes were down as many players chose to sit out the action ahead of tomorrow's Fed meeting.

In

New York Stock Exchange

trading, 917.7 million shares were exchanged while declining stocks led advancers 1,569 to 1,381. In

Nasdaq Stock Market

action 1.5 billion shares traded while losers led 3,029 to 1,293. New 52-week highs bested new lows 45 to 30 on the Big Board while new lows led 116 to 81 in over-the-counter trading.

"Tech is not going away but it's going to struggle here because it moved so far so fast," said Robert Harrington, co-head of block trading at

PaineWebber

. "Valuations are still out of whack."

Once the Fed meeting has passed, the focus will return to earnings and growth, the trader said. "Some highfliers will show good growth and revenue and will go up. Some will show things aren't so good" and will continue to suffer.

Finally, Harrington noted the Nasdaq is still struggling on a technical basis after having its "upside momentum" broken last week. Last

Thursday's intraday low around 4455 will be a short-term focus for market players, he said.

Among broader market averages, the

S&P 500

dipped 7.84, or 0.5%, to 1456.63 while the

Russell 2000

dumped 25.57, or 4.5%, to 549.20.

Among other stocks in the news,

Lehman Brothers

(LEH)

fell 4% despite reporting

earnings well in excess of expectations. The

American Stock Exchange Broker/Dealer Index

slid 4%

Among other indices, the

Dow Jones Transportation Average

fell 24.24, or 0.9%, to 2599.59, the

Dow Jones Utility Average

slid 1.88, or 0.7%, to 288.05; and the

American Stock Exchange Composite Index

shed 4.73, or 0.5%, to 1106.27.

For coverage of today's top stocks in the news, see the Company Report, published separately

.