Updated from 4:14 p.m. EDT

Wednesday's rally became Thursday's rout on the Nasdaq as disappointing guidance at Intel ( INTC) and Qualcomm ( QCOM) spooked chip investors. Blue-chips also pulled back.

After surging by 37 points in the previous session, the tech-laden Nasdaq Composite fell 41.30 points, or 1.98%, to 2039.42. The Dow Jones Industrial Average lost 83.32 points, or 0.76%, to 10,928.10, and the S&P 500 was down 10.68 points, or 0.85%, at 1249.13. The 10-year Treasury bond was up 6/32 in price to yield 5.03%, while the dollar fell against the yen and euro.

"This was an extremely disappointing trading session," said Barry Hyman, equity market strategist with EKN Financial. "The inability to maintain yesterday's gains shows the market's worry about a slowing economy. This scenario is obviously not yet discounted in the market."

The Philadelphia Semiconductor Sector Index lost 2.5% after Intel said second-quarter profits fell 57% amid a price war. The company earned $886 million, or 15 cents a share, on sales of $8 billion, and said third-quarter sales should be $8.3 billion to $8.9 billion. Analysts were looking for $9.04 billion in the current period. Intel fell $1.39, or 7.5%, to close at $17.10.

Qualcomm posted a 15% rise in second-quarter earnings but saw its shares fall on a soggy outlook. The technology company put fourth-quarter earnings at 39 cents to 41 cents a share on sales of $1.88 billion to $1.98 billion. Analysts wanted 42 cents a share on $1.99 billion. Qualcomm slid 88 cents, or 2.4%, to $35.85.

About 1.43 billion shares changed hands on the New York Stock Exchange, with decliners outpacing advancers by a 2-to-1 margin. Volume on the Nasdaq was 2.09 billion shares, with decliners beating advancers 3 to 1.

"The buyers are stepping away, as the short-covering was completed yesterday," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "We're seeing a return to the form we were in before yesterday's advance. The guidance going forward hasn't been as strong as investors had hoped for."

Stocks surged Wednesday as traders interpreted Fed Chairman Ben Bernanke's first day of congressional testimony as dovish. Bernanke said "core inflation should decline" over the next few quarters as the economy enters a period of more sustainable growth.

The Fed chief offered identical testimony before the House of Representatives on Thursday. The last Fed meeting produced the 17th consecutive quarter-point increase in the fed funds target rate. The statement that the Federal Open Market Committee gave said "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

According to the minutes of the meeting, released at 2 p.m. EDT, "members recognized the value of accumulating more information for determining what, if any, additional policy action would be needed following the tightening adopted at the current meeting," the text read. "Many members noted that significant uncertainty accompanied the appropriate setting of policy going forward, and one indicated that the decision to raise the target federal funds rate at this meeting was a close call."

Dave Briggs, head of equity trading with Federated, said "yesterday's move is starting to look like a one-day wonder. The intermediate picture still hasn't changed and successive gains have become difficult. We have a lot of overhead resistance, so we're stuck in a trading range. People don't seem to have committed new cash to the market yet."

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

Oil, which has lost 6% over the past three days, finished up 42 cents to $73.08 a barrel in volatile trading. Despite crude's gain, the Philadelphia Oil Service Sector Index dropped 4.7%, and the Amex Oil Index was off 1.4%.

Elsewhere, both the Dow Jones Transportation Average and the Nasdaq Transportation Index were slammed Thursday, losing 4.4% and 5.1%, respectively. The Philadelphia Gold & Silver Index dropped 4.4%, the Philadelphia Housing Sector Index plummeted 3.2% and the Nasdaq Computer Index slid 2.2%.

Border skirmishes continued in Lebanon, where Israeli troops pressed a second day of ground offensives as jets bombed suspected Hezbollah sites for a ninth day. Israeli air raids began after two Israeli soldiers were abducted on July 12.

Thursday was another huge day for corporate earnings, with Pfizer ( PFE) saying second-quarter earnings fell 30% from a year ago and Nokia ( NOK) reporting an in-line quarter.

Apple ( AAPL) said third-quarter earnings rose 48% to $472 million, or 54 cents a share, beating estimates by a dime, thanks to strong sales of higher-margin Mac computers. Revenue of $4.37 billion was slightly light. Apple surged $6.40, or 11.8%, to close at $60.50.

Motorola's ( MOT) second-quarter earnings rose 46% to $1.38 billion, or 55 cents a share, while sales rose 29% to $10.9 billion. Adjusted net of 33 cents a share beat by 3 cents, and the company guided revenue sharply higher. Motorola also traded higher, finishing up $1.35, or 7%, to $20.60.

eBay ( EBAY) said quarterly earnings fell 14% to $250 million, or 17 cents a share, while sales jumped 30% to $1.41 billion. Adjusted for new accounting, eBay matched forecasts with a profit of 24 cents a share. It also announced a $2 billion share-repurchase authorization. eBay gave back $1.27, or 4.9%, to $24.66.

Automaker Ford ( F) swung to a second-quarter loss of $123 million, or 7 cents a share, compared with a profit of $946 million, or 51 cents a share, last year. Excluding items, Ford had a loss of $48 million, or 3 cents a share. The Thomson First Call forecast was for EPS of 12 cents. Shares of Ford fell 14 cents, or 2.2%, to $6.19.

Dow component Honeywell ( HON) relinquished early gains after the company posted second-quarter earnings of $7.9 billion, or 63 cents a share, up 12% from a year ago. Results beat the Thomson First Call consensus by 2 cents. After beginning the session in positive territory, shares ended lower by $1.62, or 4.2%, to $36.62.

After the bell Thursday, Google ( GOOG) posted a second-quarter profit of $721 milion, or $2.33 a share, more than doubling year-ago results. Excluding items, the internet giant earned $2.49 a share, ahead of the consensus estimate of $2.22 a share, according to Thomson First Call. Net revenue reached $1.67 billion, slightly better than estimates. For the session, Google lost $11.88, or 3%, to $387.12.

Microsoft ( MSFT) said fiscal fourth-quarter profit fell 24% from a year ago to $2.83 billion, or 28 cents share. Adjusted earnings of 31 cents a share were a penny ahead of estimates. Revenue rose to $11.8 billion in the quarter from $10.2 billion last year. The Thomson First Call consensus was for revenue of $11.6 billion. Shares fell 2.4% to $22.85 during regular trading then rose 6% after the bell.

Among ratings moves, Citigroup upgraded Starbucks ( SBUX) to buy from hold, while Deutsche Securities raised its rating for SanDisk ( SNDK) to hold from sell.

Starbucks dipped 43 cents, or 1.3%, to $33.41, and SanDisk was off 21 cents, or 0.5%, to $40.08.

Elsewhere, UBS cut shares of XM Satellite Radio ( XMSR) to neutral from buy, and Juniper Networks ( JNPR) faced downgrades from Citigroup and Robert W. Baird.

XM Satellite Radio lost 59 cents, or 4.7%, to $11.92. Juniper was lower by 8 cents, or 0.6%, to close at $14.06.

On the economic docket, the Labor Department said initial jobless claims fell by 30,000 to 304,000 for the week ended July 15. The decline was greater than expected. The Conference Board said leading economic indicators for June rose 0.1%, less than expected.

In addition, the Philadelphia Fed's manufacturing index dropped to a lower-than-expected 6.0 in July. The index was expected to dip to 12.5 from 13.1 in June

Overseas, stocks were mostly higher after Wednesday's 2% gain on the Dow. In Europe, London's FTSE 100 fell 0.1% to 5770, while Germany's Xetra DAX climbed 0.2% to 5550. In Asia, Japan's Nikkei surged 3.1% to 14,947 and Hong Kong's Hang Seng gained 2% to 5987.