NEW YORK -- U.S. technology stocks slumped Monday, driving the Nasdaq market down by a record 348 points, as the failure of Microsoft settlement talks with the government exacerbated fears that computer and Internet-related issues are wildly overvalued.
"The bubble is basically deflating in the tech sector," said Edgar Peters, chief investment officer at Boston-based PanAgora Asset Management.
The Nasdaq Composite Index sank 349.09 points, or 7.63 percent, to 4,223.74, its biggest single-day points loss ever and the fifth biggest in percentage terms. The index is now at its lowest close since Feb. 3.
Analysts said that as stocks plunged, brokers were demanding that investors who borrowed through margin debt come up with more cash. Faced with these demands, investors then liquidated more shares, which added to the sell-off, they said.
"The margin speculator has been smashed," said Scott Bleier, chief economist at Primark Decision Economics in New York. "The plunge in the Nasdaq is exactly commensurate with the momentum run-up we saw earlier this year."
However, Bleier said the selling in tech stocks listed on the Nasdaq was approaching its nadir. "We are getting very close to the flush-out in Nasdaq," he said. "If it is not today, it will probably be this week."
Microsoft (MSFT), the Nasdaq's most heavily traded stock, tumbled 15-3/8 to 91-7/8, dragging its market value down by more than $80 billion after its efforts to settle the U.S. government's antitrust case against it broke down.
Judge Thomas Penfield Jackson, who is presiding over the case brought by the Justice Department and 19 states, said he would issue his final ruling on whether Microsoft broke antitrust laws at 5.00 p.m. EDT. He is widely expected to rule against Microsoft, leading to the prospect of severe penalties being imposed on the company.
Benefiting from the sell-off in technology shares were the blue chips in the Dow Jones industrial average. Investors perceived there was more value in traditional sectors than in the high-flying "new economy" issues.
The Dow ended up 300.01 points, or 2.75 percent, at 11,221.93, its highest close since Jan. 21. The gain triggered the New York Stock Exchange's curbs on index-arbitrage trading.
The broader Standard & Poor's 500 finished up 7.39 points, or 0.49 percent, at 1,505.97.
Substantial gains in financial service companies underpinned the Dow.
Dow financial heavyweights American Express, Citigroup and J.P. Morgan all rallied. American Express (AXP) climbed 6-9/16 to 155-1/2, Citigroup (C) rose 2-5/16 to 41-3/4, while J.P. Morgan (JPM) added 10 to 141-3/4.
Among the technology shares to drop were Internet services company Yahoo (YHOO), down 11-1/4 to 160-1/2, and Cisco Systems (CSCO), the company that provides much of the plumbing for the Internet, which lost 4-3/8 to 72-15/16.
