Updated from 4:04 p.m. EST

Tech stocks swooned Tuesday, as falling oil couldn't offset the bearish impact of the bond market's recent travails. Weakness in shares of Texas Instruments ( TXN) contributed to the decline.

The Nasdaq closed down 17.65 points, or 0.77%, to 2268.38. The Dow Jones Industrial Average managed a gain, rising 22.10 points, or 0.2%, to 10,980.69. The S&P 500 lost 2.38 points, or 0.19%, to 1275.88.

"The stock market is being held hostage by the bond market," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "The rise in rates, along with fears of the Federal Reserve raising the fed funds rate, have lead to profit-taking among investors. Once-stronger stocks, like energy, are experiencing the heaviest selling."

The Dow was buoyed by gains of 1.1% or more in Honeywell ( HON) and Procter & Gamble ( PG). Meanwhile, components AT&T ( T) and Alcoa ( AA) both posted losses of 1.8% or more.

The 10-year Treasury bond was up 4/32 in price to yield 4.73% -- just 2 basis points below the two-year note. Early last week, the curve had been inverted by 13 points. The dollar rose against the yen and euro.

Recent selling in stocks has been slow but steady. Since last Wednesday, the Dow has fallen 73 points, while the S&P 500 is off 15 points and the Nasdaq has fallen 46 points.

"The market is being driven by the bond market right now," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "The concern is where rates are going and what it portends for the economy and corporate profits."

Analysts say much of the weakness is attributable to bond yields, which have risen to their highest point since June 2004, the month the Federal Reserve initiated its current rate-tightening campaign. Ironically, signs of economic strength have driven the current uptick in yields, as traders prepare for two and maybe three more hikes in fed funds.

Inflation fears were stoked by Tuesday's main economic report, which showed fourth-quarter productivity fell at a revised rate of 0.5% amid rising labor costs. The decline is the first since the opening quarter of 2001. Unit labor costs rose a revised 3.3%, the biggest increase in a year.

To view Gregg Greenberg's video take on today's market, click here .

"Unit labor costs will put more pressure on the bond market," said Peter Cardillo, chief market analyst with SW Bach & Co. "The market is now gripped with rate fears and higher wage pressures. This number just adds fuel to the recent fire."

Cautious comments before the start of trading Tuesday lent to more bearish sentiment among traders. St. Louis Fed President William Poole said the Fed should "step a little harder on the brake" if economic data continued to come in strong, saying he did not believe there was danger from a possible slowdown in the housing market, according to Reuters.

About 1.66 billion shares changed hands on the New York Stock Exchange, with decliners beating advancers by a 3-to-1 margin. Volume on the Nasdaq was 1.93 billion, with decliners outpacing advancers 11 to 4.

In other markets Tuesday, oil eased as traders coped with a slew of overseas catalysts, including an OPEC meeting this week and an International Atomic Energy Agency review of Iran's nuclear program. In Nymex floor trading, April crude fell 83 cents to close at $61.58 a barrel. Over the last two sessions, crude has fallen 3.3%.

By sector, the Philadelphia Semiconductor Sector index lost 2.9% with all 19 components finishing in negative territory. Elsewhere, the Philadelphia Oil Service Sector index was lower by 2.3%, and the Philadelphia Housing Sector index ended down 1.7%.

"Investors appear to be taking profits in the technology, energy and materials sectors," said Paul Mendelsohn, chief investment strategist with Windham Financial. "In addition, financial stocks could come under pressure as rising yields on intermediate-term Treasuries begin to have a negative impact on the mortgage market and credit card debt."

Among companies, Texas Instruments ( TXN) raised the low end of its first-quarter earnings guidance, citing strong sales of communications chips. The company expects to earn 31 cents to 32 cents a share in the period, up from its old estimate of 29 cents to 33 cents. The midpoint of its revenue range went from $3.24 billion to $3.28 billion. TI lost $1.07, or 3.3%, to finish at $31.26.

Altera ( ALTR) and Xilinx ( XLNX) both reaffirmed their own profit guidance after the bell Monday.

Meanwhile, Qualcomm ( QCOM) raised its second-quarter earnings forecast to a range of 40 cents to 41 cents, up from its previous range of 35 cents to 37 cents. The company also upped its revenue forecast to a range of $1.75 billion to $1.82 billion. Shares added 62 cents, or 1.3%, to $47.86.

Early Tuesday, Fairchild Semiconductor ( FCS) upped its first-quarter revenue forecast to growth of 9%, compared to its previous range of 5% to 7%. The company cited strong order rates. The stock fell 46 cents, or 2.6%, to close at $17.40.

Cablevision's ( CVC) once-shelved plan to pay a multibillion-dollar special dividend is apparently back on. The company said in a regulatory filing Monday that it's working to satisfy legal standards and establish record and pay dates on a $3 billion special payout to shareholders. The company dropped a similar plan in December, but speculation had grown that the dividend would be revived after the company nailed down a credit line. Cablevision dipped a penny to $26.74.

Google ( GOOG) reportedly is working on a project to offer centralized computer storage to consumers. The initiative reportedly was outlined in a document inadvertently released on the Web, The Wall Street Journal reported. Google's plan is viewed as a way of de-emphasizing PC hard drives and thus challenging Microsoft ( MSFT). Google slid $3.65, or 1%, to $364.45.

Supermarket owner Albertsons' ( ABS) fourth-quarter net profit fell over 16% to $162 million, or 43 cents a share, from a year ago. Sales were down 7.5% to $10.23 billion from last year, below estimates. Earnings from continuing operations were 44 cents a share, up from 50 cents a year ago but a penny short of the Thomson First Call consensus. Albertson's rose 6 cents, or 0.2%, at $25.50.

Education company Corinthian Colleges ( COCO) was lower by 4.5% after Lehman Brothers downgraded the stock to equal-weight from underweight. The firm cited the probability of a takeout in the next six months because of declining enrollments and risks to the downside. Corinthian lost 49 cents, or 3.4%, to close at $13.85.

Overseas markets were uniformly lower, with London's FTSE 100 recently falling 0.7% to 5857. Germany's Xetra DAX lost 0.3% to 5739. In Asia, Japan's Nikkei fell 1.1% overnight to 15,726, while Hong Kong's Hang Seng shed 1.3% to 15,602.

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