Yesterday's laid-back market attitude looked like a case of false confidence today as uncertainty rattled major indices again.

After

yesterday's somewhat quiet session, in which stocks climbed steadily higher, the market didn't respond well to another round of higher inflation signals and bad news in some market bellwethers. The

Dow Jones Industrial Average

fell 80.66, or 0.8%, to 10,731.12, while the

S&P 500

dropped 21.97, or 1.5%, to 1446.28. Today's whipping boy was the technology sector, with the

Nasdaq Composite Index

tumbling 172.66, or 4.4%, to 3785.42. The small-cap

Russell 2000

dipped 13.58, or 2.6%, to 505.35.

Dow component

AT&T

(T) - Get Report

dominated the morning and weighed on the blue-chip average after the long-distance giant

cut its profit and sales forecasts for 2000, citing larger-than-expected declines in its consumer long-distance business and slower-than-expected sales growth in business services. Shares of AT&T sank 14.3% to 42 3/16, a little too close to the stock's 52-week low for comfort.

"The day started off quietly enough with the news being dominated by AT&T. As the afternoon progressed, profit-taking just picked up," said Bill Schneider, head of U.S. equity block trading at

UBS Warburg

.

Not providing any comfort though was a fresh round of economic news showing the U.S. economy motoring along at a rapid pace. The

Conference Board

said its

index of leading economic indicators, which tries to forecast trends in economic growth, rose 0.1% in March after falling 0.3% in February. Meanwhile, the

Commerce Department

reported that sales of new U.S. homes rose 4.5% to a very high 966,000 unit annual rate in March, the second-highest pace on record. The data indicates the new homes market has show no sign of cooling despite five interest rate hikes from the

Federal Reserve last June. It also means considerable nervousness about what tack the Fed will take when it meets again on May 16.

The caution is not likely to subside anytime soon, especially ahead of Thursday's productivity report for April, and Friday's April

employment report.

"Everybody is trying to cast bets on whether

Fed Chairman

Greenspan will remain a gradualist or go with 50 basis points," at the next meeting, said Howard Barlow, vice president at

WHB/Wolverine Asset Management

in Stamford, Conn. Barlow said another factor behind the downdraft today may have been caution about nearing the 4000 mark on the Nasdaq again. The Comp was getting near 4000 again soon after the closing low of 3321.29 on April 14, he noted. "It was due for a little pullback," he said. "People are just squeezing a little juice out of the gains of the past couple of weeks."

Dow dweller

Microsoft

(MSFT) - Get Report

was also down in the dumps again, this time on cautious comments on the stock price from influential

Morgan Stanley Dean Witter

analyst Mary Meeker. In the wake of a government request to break the company apart, Morgan Stanley said it likes Microsoft stock but likes it a little better in the 60s. The stock quickly moved in that direction when the market opened, and Microsoft ended down 3 9/16 to 69 7/8.

Rotation in and out of sectors has been so rapid lately that shifts don't always seem to make sense. Today for instance, cyclicals including drug stocks, paper stocks and oil were mostly in the green, though the flight from New Economy stocks proved overpowering. Despite the Dow's dip today, there was a noticeable green spot from stocks including

McDonald's

(MCD) - Get Report

, up 0.8%,

Merck

(MRK) - Get Report

, up 2.5%, and

International Paper

(IP) - Get Report

, up 3.9%.

AT&T's warning dragged down the rest of the sector, with the

Nasdaq Telecommunications Index

off 5.1%.

SBC Communications

(SBC)

dropped 5%,

Bell Atlantic

(BEL)

fell 6.6% and

MCI WorldCom

(WCOM)

slid 6.5%.

Recent spinoff

AT&T Wireless

(AWE)

was also feeling disconnected, off 8.5%, despite a number of new and positive coverage from brokerage firms including UBS Warburg,

ABN Amro

and

Lehman Brothers

which rated the stock a buy.

Goldman Sachs

added the stock to its recommended list.

AT&T wasn't the only wireless stock with feeling pressure today. Also in the red were

Nortel Networks

(NT)

, off 2.8%, and

Nokia

(NOK) - Get Report

, which dipped 5.6%

Qualcomm

(QCOM) - Get Report

, however, bucked the trend, lifting 3.6%.

Biotech issues also handed back some of the gains they registered yesterday with the

Nasdaq Biotechnology Index

down 4.7%.

TheStreet.com Internet Sector

index tumbled 48.4, or 5.3%, to 871.

Market Internals

Breadth was negative on heavy volume.

New York Stock Exchange:

1,288 advancers, 1,694 decliners, 1.015 billion shares. 50 new 52-week highs, 45 new lows.

Nasdaq Stock Market:

1,502 advancers, 2,636 decliners, 1.415 billion shares. 36 new highs, 67 new lows.

For a look at stocks in the news, see the Company Report, published separately.