Updated from 4:14 p.m. EST

Stocks tumbled Monday as new concerns about violence in the Middle East helped extend a correction that is now almost two months old. All three major averages hit fresh lows for 2004, with the worst selling occurring in the Nasdaq, where investors have now given back more than 10% since late January.

The Dow Jones Industrial Average closed down 121.85 points, or 1.2%, to 10,064.75; the Nasdaq Composite was off 30.56 points, or 1.57%, to 1909.91; and the S&P 500 shed 14.34 points, or 1.29%, to 1095.44. The day's one saving grace was its light volume: about 1.4 billion shares on the New York Stock Exchange and more than 2 billion shares on the Nasdaq Stock Market.

"People are concerned about what the Hamas response will be to Israel's killing of their spiritual leader," said Robert Pavlik, portfolio manager at OakTree Asset Management. "There's a lot of uncertainty in the market now about what to expect from the upcoming earnings season, where the price of oil is going, what the November election might bring and where this economy is going, and when you combine all of that with the fear of terrorism, it keeps buyers on the sidelines."

The Dow went as low as 10,012 Monday, while the Nasdaq hit 1897 and the S&P 500 touched 1089. All were lows for 2004, eclipsing the nadirs set March 15, when shock over the Madrid train bombings sent the Dow to a 137-point loss and dragged the Nasdaq down 2.3%. The Dow is currently down 3.7% for 2004 and has fallen 6.3% from its Feb. 11 high of 10,737. The Nasdaq is off 4.6% for the year and 11.3% from its Jan. 26 high of 2153.

"The market's in a bit of a news vacuum right now, and terrorism fears are filling that void," said Brian Piskorowski, market analyst at Wachovia Securities. "The market does not do well with unrest, but I think, if left to its own devices, the market would have a hard time running on its own steam."

"We're looking a little tired here," Piskorowski said. "Technicals have been deteriorating over the last few weeks, and this is the correction that we haven't had in over a year."

Ken Tower, chief market strategist with Cybertrader, noted that the major indices hit new lows for the year last week and stayed in a tight, six-day trading range afterward. Monday's piercing of those levels could signal that the current correction has gained traction and that the markets are adjusting to lower valuations.

"That suggests we're still in the downtrend that we watched develop over the last month," Tower said. "We're in the correction that we have been waiting so long for, but our forecast for the year is still good. We think that this is the second year of a two-year bull market, and we're just looking at this as a correction that is primarily focused in the Nasdaq, where valuations got a little ahead of themselves."

The major averages currently sit between technical barriers mapped out by their 50-day and 200-day moving averages. Coming into Monday, the Dow's 50-day moving average stood at roughly 10,509, while its 200-day moving average was 9799. The Nasdaq's 50-day moving average was 2048, while its 200-day moving average was 1886.

Decliners outpaced advancers by about 7 to 2 on both exchanges.

The Dow's losers were spread around sectors, with the biggest being Altria ( MO), down more 3%; Honeywell ( HON), down 2.7%; and General Electric ( GE), down more than 2.3%.

"Equity-wise, there really isn't any sector that's holding up," said Brian Pears, head equity trader at Victory Capital Markets. "If one is really worried about it and trading around positions, the safest place is to be out of stocks."

"That's not our position because we're a long-term investor, and it's not really our style, but there really aren't any good short-term plays here. The threat of global terrorism causes panic across the board because of the unpredictable nature of the beast," Pears said.

The Dow's three main financial components -- Citigroup ( C), J.P. Morgan ( JPM) and American Express ( AXP) -- fell, contributing to a 1.25% decline in the Amex Banking Index, although the proxy is still up about 4% on the year.

In tech, networking and Internet indices led the way lower, while the Philadelphia Semiconductor Index lost almost 1%. Amazon.com ( AMZN) closed off $1.95, or 4.6%, to $40.85; Yahoo! ( YHOO) closed down $1.28, or 2.8%, to $44.47; and eBay ( EBAY) was off $2.26, or 3.3%, to $66.04.

The 10-year Treasury note rose 15/32 in price to yield 3.71%, while the dollar was lower vs. the euro and higher against the yen. Crude oil futures were lower while gold rose.

While the U.S. urged restraint, prospects for peace in Israel looked shattered following the assassination of Ahmed Yassin, who one Israeli official called the "Palestinian bin Laden." A top Hamas official was quoted by wire services saying that "words cannot describe the emotion of anger and hate inside our hearts." The U.S. government denied any involvement in the raid.

The incident is the latest in a flurry of violence that began 11 days ago with bombings in Madrid that killed more than 200 and continued throughout last week with scattered incidents in several Iraqi cities. The stock and bond markets have shaken off most of the headlines to date; it remained to be seen if the early weakness in futures trading would seep into the regular session.

In corporate news, Smurfit-Stone ( SSCC), a package maker that is sometimes viewed as an economic proxy, said its first-quarter loss will be wider than originally expected because of pricing pressures and higher costs. The company forecast a loss of 22 cents to 25 cents a share, more than twice the analyst consensus. Its shares closed down 79 cents, or 4.5%, to $16.71.

Walgreen ( WAG) reported a 17% increase in second-quarter earnings, driven by strong demand for prescription drugs. The drugstore chain matched Wall Street's expectations, as earnings came in at 42 cents a share compared with 36 cents a share a year earlier. Its shares lost 75 cents, or 2.2%, to close at $32.76.

Carnival ( CCL) reported higher first-quarter earnings, beating Wall Street's expectations. The cruise ship group earned 25 cents a share, compared with last year's 22 cents a share. The consensus estimate was for flat earnings. Its shares closed down 54 cents, or 1.3%, to $41.97.

Sprint FON ( FON) was upgraded to overweight at J.P. Morgan, which argued that its portfolio of businesses is the best in the telecommunications sector. The brokerage raised Sprint's cash flow estimates for this year and next and said 2005 per-share earnings estimates look conservative. Its shares closed down 18 cents, or 1%, to $17.48.

J.P. Morgan cut its rating on Prudential Financial ( PRU) to neutral from overweight. Prudential shares lost 55 cents, or 1.2%, to close at $45.20.

No major economic releases are scheduled for Tuesday. Earnings announcements are due from Goldman Sachs ( GS), expected to report first-quarter earnings of $1.66 a share, up from last year's $1.29 a share; and Family Dollar ( FDO), expected to report second-quarter earnings of 46 cents a share, up from last year's 42 cents a share.