Dow crashes below 10K, Nasdaq loses steam

But while there was significant buying in two- andfive-year notes related to asset allocation shifts, traders said that flows were light for most of the session.

US stocks flagged in late trading on Friday with even the usually resilient technology sector coming under pressure after strong gross domestic product figures reinforced speculation that interest rates will go up sharply. "We are in the middle of a correction here in most stocks except tech," said Guy Truicko, portfolio manager at Unity Management in Garden City, NY. "It is a continuing worries about (Federal Reserve Chairman Alan) Greenspan being a loose cannon about interest rates combined with the economy not slowing at all."

Traders nervously watched the Dow, a day after the 30-stock blue-chip index dipped intermittently below 10,000 for the first time since October. There is concern that if the Dow closes below that psychological level, it could signal market weakness ahead, analysts said.

"The stock market more and more is waking up to the realisation that two more interest rate hikes, and perhaps three," are being factored in, said David Sowerby, market strategist at Loomis Sayles in Detroit.

In economic news, fourth quarter Gross Domestic Product figures showed a bigger-than-expected jump, further proof that the record-long economic expansion is showing no signs of easing up. "The GDP figures were a little bit stronger than expected but there were no inflationary numbers in there," said Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum Inc. "It just reinforces the Greenspan commentary of last week of why interest rates are headed higher."

Drugs stocks were hit by selling, with Johnson & Johnson, Merck, and Schering-Plough Corp. all moving to lows not seen in a year. Financial services stocks backtracked from their strongest levels, with American Express flat at 130-1/16 and JP Morgan & Co. Inc. off 11/16 at 108-7/8.

Some pockmarked earnings news did nothing to comfort the jangled nerves of investors. Intuit shares were slammed after the personal-finance software company’s quarterly earnings met analysts’ targets, but did not satisfy Wall Street at large.

Internet Capital Group fell 10 to 109-1/8 after the company, which invests in many Internet companies, said it expects to post losses for "many quarters in the foreseeable future". The Russell 2000, a small-cap barometer, outpaced the broad market, rising nearly a full per cent. On the New York Stock Exchange, decliners were beating advances 17 to 11 with 868 million shares changing hands. There were 45 stocks hitting new highs and 204 hitting new lows.