Financials led the big chip stocks lower today, putting the

Dow Jones Industrial Average

into a free fall. The index skidded 265.5 to 10,449.3. But the

Nasdaq Composite Index

reaped the benefits of the financials decline, and managed to close up 14.8, or 0.38%, to 3860.5 in positive territory. The

S&P 500

ended the day down, 14.26, or 0.96%, to 1464.47, while the

Russell 2000

finished up 1.46, or 0.29%, to 513.71.

"We're experiencing a late afternoon sell-off," said James Maguire Jr., managing director at

LaBranche

. "The market spent a good portion of the day in negative territory and this is just some follow through."

Preannouncment woes plagued regional banks for a second day in a row, after

UnionBanCal's

(UB)

second-quarter earnings warning triggered downgrades from

Morgan Stanley Dean Witter

and

Lehman Brothers

. Morgan Stanley also sliced its rating on

Wachovia

(WB) - Get Report

, which yesterday cautioned of a second-quarter shortfall.

"After Wachovia and UnionBanCal pre-announced yesterday, there are worries about loan quality," said Patrick Boyle, director of trading at

Credit Suisse First Boston

, noting that Monday and Tuesday's buyers of financial stocks have now turned into sellers. "There is a lot of nervousness out there, with the questions being who will pre-announce next and what will the quality of earnings be like this quarter."

The regional banks' troubles trickled over to the brokerage sector. The

American Stock Exchange Broker/Dealer Index

fell 3.2, or 0.64%, to 498.17. Dow components

J.P. Morgan

(JPM) - Get Report

slipped 6.7%, while

American Express

(AXP) - Get Report

was off more than 6.9%.

But financials weren't the only stocks getting hit with the pre-announcement punch. Tech giant

Xerox

(XRX) - Get Report

was socked down 18.7% after it warned that it will miss second-quarter earnings expectations because of slower sales of high-end printer products and significant unexpected provisions in its $400 million-a-year business in Mexico.

"Computer systems are down because of

Perot System's

(PER) - Get Report

pre-announcement," said Brian Conroy, head of listed trading at J.P. Morgan. "The warning is putting pressure on

EDS

(EDS)

." Perot Systems ended down more than 20.5%, while EDS fell 5.8%.

On the upside, the drug sector was buzzing, with the

American Stock Exchange Pharmaceutical Index

closing up 1.5, or 0.38%, to 399.4.

Eli Lilly

(LLY) - Get Report

climbed to a 52-week high. The stock is finished up 1 15/16 to 84 15/16. The group benefited from the spring tech decline, as investors moved money out of stocks with lofty valuations.

Within the tech sector, semiconductor stocks were strong, with

Analog Devices

(ADI) - Get Report

up 1.8%, while

Applied Materials

(AMAT) - Get Report

lifted 5.2%. The

Philadelphia Stock Exchange Semiconductor Index

climbed 25.6, or 2.2%, to 1158.1.

Today's market troubles include earnings jitters, as well "triple-witching," the simultaneous expiration of index futures, index options and selected stock options. But Jim Benning, a trader at

BT Brokerage

, said any sharp swings caused by the expirations would be short-lived.

"The effects of triple-witching always reverse themselves the next morning anyway, so anything weird that happens today will turn around on Monday," he said.

But according to some Wall Street insiders, today's market activity can't be chalked up to the triple-witching. "There is a lot of activity at the open and close, but triple witches are usually pretty quiet days, said LaBranche's Maguire. "The market really didn't have a lot to look at other than the financials."

Futures and options expirations, which expire in the morning and afternoon, respectively, tend to boost market volatility as institutions roll over their quarterly contracts. The September contract started trading last Thursday, but the market can pop quickly in either direction on the last day of expiration.

Friendly housing starts and consumer sentiment numbers earlier this morning weren't giving any fuel to this market. "After recent data, these numbers weren't so surprising, that's why they didn't have a lot of impact," Benning said.

With some pretty cool numbers in recent weeks, the market continued to weigh the likelihood that interest rates will stay put at the

Fed's

June 28 meeting against fears that an economic slowdown will bite into earnings.

The

Federal Communications Commission

gave its approval to

Bell Atlantic

(BEL)

and

GTE

(GTE) - Get Report

$65 billion merger. Both stocks finished in the red, with Bell Atlantic off 2.6% and GTE down 4.2%.

Equant

(ENT) - Get Report

and

Global Crossing

(GBLX)

ended their merger talks because of a disagreement over the price,

Reuters

reported a source as saying.

Global Crossing was the second company in a week to end talks with Equant without reaching an agreement.

France Telecom's

(FTE)

exclusive right to negotiate with Equant ended a week ago with no deal. Equant fell 4.4%. Global Crossing lost 2.5%.

Oil service stocks were close to hitting their all-time high levels, as crude oil futures tumbled more than $1.00 a barrel this morning amid selling pressure spurred by expectations that

OPEC

will increase output next week.

Halliburton

(HAL) - Get Report

rose 5.2%, while

Global Marine

(GLM)

bounced 5.5%. The

Philadelphia Stock Exchange Oil Service Index

was up 5.27, or 4.4%, to 124.52%.

Along with oil services, oil stocks shot up with the

American Stock Exchange Oil & Gas Index

climbing 14.76, or 2.8%, to 542.26. The high price of oil fueled last quarter earnings for the sector. Dow component

ExxonMobil

(XOM) - Get Report

tacked on 1.2%, while

Sunoco

(SUN) - Get Report

lifted 6.3%.

Qualcomm

(QCOM) - Get Report

, brokerage

Lehman Brothers

(LEH)

,

Rambus

(RMBS) - Get Report

and

Red Hat

(RHAT)

all had good days.

Qualcomm was rebounding this morning after tumbling yesterday, and the stock mounted 7%. Yesterday,

Chase Hambrecht & Quist

downgraded the company's earnings estimates.

TheStreet.com

took a look at what happened to this

former highflier in a story yesterday. We also looked at the

analyst who thought the stock was going to the moon just six months ago. And another of our reports checked out how heavily

mutual funds are invested in the stock.

Rambus was soaring after

Morgan Stanley Dean Witter

raised it to strong buy from outperform. The stock soared 45.8%.

Lehman Brothers edged up 7/16 to 89 15/16 after it rolled out second-quarter earnings far above forecasts of $2.78 per share, versus the

Reuters

consensus estimate of $2.49 per share and the previous quarter's $2.09 per share.

Circuit City

(CC) - Get Report

, meanwhile, closed down 4.1% after announcing this morning it met first-quarter earnings estimates.

The

S&P 500 Retail Index

sold off 19.1, or 2.2%, to 839.6.

TheStreet.com

recently wrote about the quarter's

corporate earnings and the Fed's

interest rate plans.

A big brouhaha erupted when Spanish newspaper

El Mundo

reported that

Telefonica

(TEF) - Get Report

chairman Juan Villalonga traded options on the company's shares without reporting this to the relevant authorities and while the Spanish telco was in talks with

Worldcom

(WCOM)

. The company vigorously denied this, but the shares fell 1.10 euros, or 4.7%, to 22.10 ($21.22).

For the week, the Dow lost 1.6%, the Nasdaq Composite gained 0.47%, the S&P 500 lifted 0.57% and the Russell 2000 fell 1.8%. The Dow Jones transports lost 4.2%, the

Dow Jones Utility Average

edged up 0.1% and the

American Stock Exchange Composite Index

rose 0.4%. TheStreet.com Internet Sector index skidded 5.5% in the latest week.

Market Internals

Breadth was negative on both the NYSE and Nasdaq on moderate volume.

New York Stock Exchange:

1,306 advancers, 1,582 decliners, 1.211 billion shares. 69 new 52-week highs, 65 new lows.

Nasdaq Stock Market:

1,788 advancers, 2,104 decliners, 1.4 billion shares. 52 new highs, 82 new lows.

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Bonds/Economy

Treasuries leapt higher after the 8:30 a.m. EDT release of the May

housing starts

report, which was significantly weaker than expected.

The bond market is hungry for indications of slowing economic activity because of the possibility that continued above-trend growth will lead to higher inflation, which hurts bond prices.

In addition to the lower-than-expected number of housing starts (1.592 million, the lowest since June 1999, vs. a consensus forecast of 1.624 million), building-permit issuance, a predictor of future housing starts, also fell sharply. The May permit-issuance pace of 1.492 million was the lowest since December 1997.

The benchmark 10-year Treasury note was lately up 15/32, at 103 23/32, yielding 5.986%.

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International

European markets were sluggish and mixed at closing, with only London gaining ground.

The Paris

CAC

closed down 56.72, or 0.9%, to 6456.26, while Frankfurt's

Xetra Dax

was down 70.94, or 1%, to 7257.68 in. late trading.

Across the channel, London's

FTSE

gained 35.2, or 0.5%, to 6526.0.

The euro was lately trading back up at $0.9643.

Asian markets were mixed overnight.

Hong Kong's

Hang Seng

index continued to rise on optimism about a comeback in real estate prices and closed up 354.04, or 2.20%, to 16,434.38.

In Tokyo trading, the

Nikkei 225

index continued to slide, off 20.39, or 0.12%, to 16,318.31.

The greenback was recently fetching 106.25 yen.

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