Blame the yen.
On Monday, the dollar rose to the highest level against the Japanese currency in seven weeks, amid lots of skepticism that the new administration of Prime Minister Keizo Obuchi will be able to come up with measures to rescue Japan's ailing economy.
A falling yen means Japan, one of the biggest buyers of gadgets and technology, can afford fewer American goods. That's not good for US corporate earnings.
"The focus is on the dollar-yen relationship and the difficulties multinationals are going to have operating in an environment with the stronger dollar," said Arthur Hogan, chief market analyst at brokerage Jefferies & Co.
Technology stocks suffered the most on Monday. Computer-related issues dragged the Wired Index down 13.30 points, or 3.1 percent, to 418.17. Nasdaq, the home of many tech stocks, slipped 20.67 points to 1,851.72.
It didn't help matters that Microsoft, the world's biggest PC software company, declined in heavy trading, after the US Justice Department said that Chairman Bill Gates has to spend more time answering prosecutors' questions in the government's antitrust case.
Justice charged that Microsoft is stonewalling access to Gates, and dragging its feet in coming up with documents about how Windows works. The department's request adds more evidence that the government is willing to stay on the case as long as necessary, distracting Microsoft from its business.
Microsoft (MSFT) fell US$1.31 to $108.63.
Cisco Systems' (CSCO) shares rose $1.50 to $97.25. The world's biggest networking equipment maker will report its fiscal fourth quarter earnings on Tuesday, and analysts expect the company to beat the Wall Street forecast. The consensus says Cisco's earnings will rise 30 percent to at least 48 cents a share. BancAmerica Robertson Stephens' Paul Johnson -- who's considered one of the best networking analysts -- told his brokers on Monday to tout the stock.
The Wired Index's semiconductor stocks also rose, following indications that chip prices may be bottoming. Last week, computer memory chipmaker Micron Technology said it saw a modest pickup in DRAM prices in July following several months of decline. That indicates a worldwide glut of computer chips may be draining.
Applied Materials (AMAT), the biggest maker of equipment for chip factories, rose 33 cents to $33.83. Intel, the biggest microprocessor maker (INTC), rose 94 cents to $85.38.
Meanwhile, drug-related stocks fell sharply after a federal judge sided with the government's antitrust concerns and blocked the nation's four largest drug wholesalers from merging into two companies.
Gene analysis equipment maker Affymetrix (AFFX) fell $1.63 to $25.25, while Incyte Pharmaceuticals (INCY), which makes software for gene analysis, dropped $2.81 to $33.25. SmithKline Beecham (SBH), one of the biggest pharmaceuticals, lost $1.13 to close at $56.38.
Internet stocks lost more of their steam, as they have been doing for the past week. America Online (AOL) shed 38 cents to close at $116.75, while Yahoo (YHOO) dropped $4.50 to $86.50.
The Dow Jones Industrial Average fell 96.55 points to 8,786.74, largely because of concerns about Japan's troubles. The S&P 500 gave up 8.32 points to end at 1,112.35.
Reuters contributed to this report.
