Updated from 4:08 p.m. EDT

Stocks endured another difficult session, as concerns about the state of corporate earnings and the prospect of war with Iraq dragged the

Nasdaq

below the six-year low it set in July.

The

Dow Jones Industrial Average

closed down 114 points, or 1.4%, at 7872.2, while the Nasdaq fell 36 points, or 3%, to 1184.9. The

S&P 500

lost 12 points, or 1.4%, to finish at 833.7.

The Nasdaq, which fell 5.4% last week, is now below its Aug. 5 closing low of 1206, and is also beneath the 1192 it hit during the July 24 session.

The sell-off in stocks was being matched by a corresponding rally in the Treasury bond market. Recently, the 10-year note was up 28/32 to yield 3.68%, a yield not seen since the Kennedy administration. Besides their safe-haven status, the notes were reportedly benefiting from demand on the part of mortgage lenders seeking to extend the average duration of their assets in the face of mass prepayments.

Morgan Stanley on Monday lowered its 2002 earnings estimate for companies in the S&P 500 to $47.50 a share from $50, citing a slow economic recovery. The brokerage also cut its estimate for 2003 earnings to $55 a share from $58.

Oil prices were at a one-year high Monday morning amid reports that the U.S. is making initial military preparations for a potential invasion of Iraq. Brent crude oil for November delivery rose as much as 48 cents, or 1.7%, to $28.91 a barrel on the International Petroleum Exchange in London.

The New York Times

reported Monday that American military commanders have taken preliminary steps to deploy forces, although these steps have been designed not to interfere with President Bush's efforts to line up military support for an attack. Meanwhile, Republicans and Democrats predicted over the weekend that Congress will pass a resolution to authorize military action against Iraq.

Among individual sectors, telecommunications, networking, retail, wireless and the airlines were all facing pressure, while tobacco and oil services were showing some strength. Decliners outpaced advancers 3 to 1 on the

New York Stock Exchange and 5 to 2 on the Nasdaq.

Dole Food

(DOL) - Get Report

was a big winner after the company's chief executive offered to buy out public shareholders for $29.50 a share, a 20% premium over Friday's close. The shares jumped 18.4% at $28.99.

Monday's corporate news was dominated by the telecom sector.

Qwest

(Q)

said it had discovered nearly $1 billion in additional revenue and costs that might require restatement. The amounts relate to optical capacity swaps on its network, and brought to nearly $1.5 billion the amount of potential restatements it is now contemplating. The stock fell 2.1% to $2.79.

Meanwhile,

Sprint

(FON)

entered a $2.3 billion deal to sell its phone-directory business to

R.H. Donnelley

(RHD)

. Donnelley's shares tacked on 0.5% to $23.70, while Sprint's shares rose 4.4% to $9.42.

Optical equipment maker

JDS Uniphase

(JDSU)

pared its first-quarter sales guidance, as telecom weakness continued to take a toll. The company now expects sales of $190 million to $200 million for the period ending Sept. 30, below its previously estimated range of $200 million to $210 million. The lowered guidance reflects contract cancellations of $10 million to $20 million. Shares fell 10.8% to $1.89. The broader sector was also seeing a sell-off, with the Amex Networking Index down 3.7%.

In economic news, the Conference Board said

leading indicators fell 0.2% in August, compared with a 0.1% decrease in July, marking the third straight month of declines. The results, which were slightly below economists' expectations, suggest a recovery in the economy is set to stall.

In the software sector,

Peregrine Systems

filed for Chapter 11 bankruptcy protection, and said it plans to sell its Remedy unit to BMC Software for $350 million in cash, about a third of what it originally paid for it.