NEW YORK -- U.S. stocks suffered their biggest setback in at least nine weeks as a drop in Microsoft Corp. drove down shares of other technology companies.
One day after reaching a record 4,736.29, the Dow Jones industrial average tumbled 50.01 points, to 4,686.28, its biggest drop since May 18.
Technology shares -- which for some investors are the stock market's new bellwether -- slumped after Microsoft Corp. warned investors about growth prospects over the next year. The warning raised concern that earnings could falter at other technology companies.
"When the leadership falters, everything follows," said Stefan Abrams, equity strategy director at Trust Co. of the West in Los Angeles, which manages about $47 billion.
Microsoft fell $7.125, to $101.875. The decline came as two brokerages lowered their investment ratings soon after the software maker reported fiscal fourth-quarter earnings.
On the broader market, the Standard & Poor's 500 index, which reached a record 562.60 yesterday, fell 4.26, to 558.46, hurt by weaker computer software, semiconductor, computer hardware, communication equipment and photography companies.
The Wilshire 5000 index went down 42.16, to 5,500.36, the American Stock Exchange market value index fell 2.18, to 516.81 and the Russell 2000 index of small-company stocks dropped 2.37, to 293.59.
More than 15 stocks fell for every seven that rose on the New York Stock Exchange, which invoked limits on index-arbitrage trading for the first time since June 9. Trading grew to 372.2 million shares from 322.6 million yesterday.
The Nasdaq composite index, which yesterday rose to a record 1,005.9, slid 17.36, to 988.53, its biggest drop since February 1994, as Microsoft, Intel Corp., Oracle Systems Corp., Cisco Systems Inc. and Novell Inc. slumped.
After the market closed, Intel, the country's leading computer-chip maker and the biggest company on Nasdaq, said second-quarter earnings rose to 99 cents a share from 73 cents last year. That was beneath analysts' estimate of $1.03 a share.
Auto, paper and other companies whose business is closely tied to economic ups and downs were among those posting the biggest losses as yields on 30-year Treasury bonds rose for a fourth day, climbing to a seven-week high of 6.76 percent.
Morgan Stanley's cyclical index of 30 such stocks fell 6.63, to 352.68, while its index of consumer-growth stocks added 0.28, to 246.7.
Caterpillar Inc. lost $2.625, to $71.25, Georgia-Pacific Corp. slid $2.625, to $87.50, International Paper Co. fell $3.625, to $85.50, and chemical maker Rohm & Haas Co. dropped $2, to $56.625.
The slump reflected investor concern that "has nothing to do with earnings today," said Charles Lieberman, managing director at Chemical Securities Inc. "It all has to do with earnings down the road."
International Business Machines Corp., which said second- quarter net income more than doubled to $2.97 a share from $1.14 last year, was an example of investors' concern. IBM first fell as much as $4.37.5 to $102.875 before rallying to $106.875, down 37.5 cents.