Updated from 4:06 p.m. EST

A disappointing sales outlook from

Cisco

(CSCO) - Get Report

and concerns about the

Federal Reserve's

sharp rate cut left the major averages dripping in red ink Thursday.

The

Dow Jones Industrial Average

ended down 184 points, or 2.10%, to 8586 while the

Nasdaq

was down 42 points, or 2.96%, to 1377. The

S&P 500

finished down 21 points, or 2.28%, to 902.

The selloff was broad based, with networkers and semiconductors down 8% on average, banks down by 3.7% and retailers off by 1.5%.

"Cisco is being used as an excuse to sell but I think the real focus here is the weakening in the dollar after the 50 basis point cut," said Peter Cardillo, chief strategist at Global Partners Securities.

Cardillo said the cut was "totally unwarranted" and has sparked fears that the economy is in worse shape that investors previously believed. The dollar lost ground against the pound and the euro Thursday.

The Fed's larger-than-expected half point rate cut and shift to a neutral policy bias sent stocks climbing on Wednesday. The resignation of SEC Chairman Harvey Pitt and a Republican sweep in the congressional elections added to the positive tone.

That optimism faded Thursday as investors started to question the Fed's motive for its drastic cut, particularly since the European Central Bank and Bank of England didn't mirror the Fed's move and left rates unchanged.

Analysts said the decision to reduce rates implies weak economic growth and

raises questions about credit quality.

David Bowers, global strategist at Merrill Lynch, said he doesn't know how effective the additional cut will be given that the prior 11 rate cuts totaling 4.75% haven't delivered a meaningful economic recovery. He also noted that the cut points to "single-digit" global earnings growth in 2003.

"Looking back over the past three decades, it was only when the Fed funds rate was higher than the level a year earlier that you saw double-digit earnings growth," he noted.

Although the Fed primarily cited "geopolitical risks" for its rate cut Wednesday, the minutes of the Sept. 24 FOMC meeting revealed that the Fed was concerned about a sharp drop in inflation. Because the growth of economic activity is expected to remain below the economy's potential for some time, price increases could come under further pressure, the minutes showed.

Still, the Fed also acknowledged that there are "significant crosscurrents in the outlook for prices."

Comments from Cisco Systems also gave investors a reason to take some money off the table Thursday after what has been a very robust four-week rally. The firm said it expects sales to be flat to lower in the second quarter and that tech spending remains weak. Cisco beat analysts' estimate by a penny in its fiscal first quarter, but revenue fell short of analysts' expectations by about $100 million, coming at $4.8 billion. Cisco was down 4% to $12.35.

Other networking issues declined in unison, with

Nortel

(NT)

down 6% to $1.43 and

Lucent

(LU)

down 7% to $1.22.

Stocks have surged over the past month, with the Dow up almost 20% from its intraday low on Oct. 9 and the Nasdaq up 25% from its low on Oct. 8.

In the Internet space,

Yahoo

(YHOO)

was a big loser, falling 10% to $15.60 after Prudential Securities cut the stock to hold from buy, citing valuation concerns.

While techs were weak in general, some retail issues were doing better after reporting that same-store sales improved in October.

Gap Stores

(GPS) - Get Report

turned in an 11% increase at comparable stores and said third-quarter earnings could be double the 6 cents analysts were predicting.

In addition,

Wal-Mart

(WMT) - Get Report

said sales at stores open more than a year rose 3.7% in the month. That's toward the higher end of its prior guidance.

Pier 1

(PIR) - Get Report

said same-store sales rose 6.3% and affirmed its current-quarter earnings guidance, while

Talbots

(TLB)

said comparable store sales edged up 1.7% and raised its third-quarter estimate. Still,

Costco

(COST) - Get Report

lowered its first-quarter outlook after saying October same-store sales rose 2%.

Economic data did little to bolster confidence Thursday. The government said productivity rose 4% in the third quarter, well up from the 1.7% reported in the prior quarter but just shy of the 4.2% gain that had been expected. New claims for unemployment benefits fell by 20,000 to 390,000, but the four-week moving average for first-time unemployment insurance claims rose 250 to 402,000.

Separately, the Commerce Department said wholesale inventories rose 0.5% in September, as auto dealers replenished their stocks. Economists had expected an increase of just 0.1%.

In other news,

Advanced Micro Devices

(AMD) - Get Report

said it would take a charge of several hundred million dollars in the fourth quarter while also standing by its target of 20% sequential revenue growth. Shares were down 5.6% to $6.82.

J.P. Morgan

(JPM) - Get Report

fell 6.6% to $20.60 amid speculation about potential losses at its derivatives operations. A J.P. Morgan spokesperson called the rumors "false and irresponsible."

In the homebuilding sector, stocks mostly fell after CS First Boston downgraded the group on concerns that the housing boom may be slowing.

Treasuries were higher on the Fed's rate cut, with the 10-year note adding 16/32 to yield 3.99%. On the political front, President Bush said in a speech this afternoon that he would work with Congress to pass new growth and jobs packages early next year

European shares were lower Thursday, with London's FTSE 100 off 0.5% to 4081 and Germany's Xetra DAX down 4% to 3147. In Asia, Japan's Nikkei fell 0.4% to 8920, and Hong Kong's Hang Seng rose 0.7% to 9844.