Stocks tumbled Wednesday as market-leading technology shares were sold off, while bonds fell sharply on worries about next week's Treasury debt auctions.
The dollar soared to a four-year high against the Japanese yen but fell against other major currencies.
The drop in the stock market came after Federal Reserve Board policy-makers decided to leave interest rates steady at the end of a two-day meeting.
The Dow Jones industrial average closed down 86.58 points at 6,746.90 after losing more than 120 points in a late sell-off.
Broader measures also fell sharply after the Fed's afternoon announcement.
The technology-laden Nasdaq market posted the biggest losses as investors dumped leading industry names after a less-than-enthusiastic response to Cisco Systems' earnings report and some downgrades on Intel's high-flying shares.
Meanwhile, bond prices fell for the first time in seven sessions as traders ignored the Fed's signal that it isn't worried about inflation and focused on a government report due Friday that may show job growth was strong in January.
The yield on the benchmark 30-year bond rose to 6.75% from 6.70% on Tuesday.
The six-session rally had driven bond yields down almost a quarter of a percentage point.
Also weighing on bondholders' sentiment is the Treasury's plan to sell $39.75 billion in debt next week. That's more than the $37.9 billion expected by economists surveyed by Bloomberg News. The auctions will raise $21.72 billion more than is coming due.
The stock market tech sell-off quickly spilled over into the broader market.
"Year-to-date, the best-performing group had been technology. So if the market's going to back and fill, then investors will have to take profits out of the best-performing sector," said Jeffrey Applegate, chief investment strategist at Lehman Bros.
Cisco, down 4 1/8 to 63 as the most active Nasdaq issue, reported late Tuesday that its fiscal second-quarter profit improved 61%. The results were slightly above expectations, but the stock fell amid growing jitters about the overall health of the computer-networking industry. In recent weeks, rivals Cascade and 3Com have issued worrisome earnings news. 3Com fell 3 7/8 to 54 7/8 in Nasdaq trading after a reported downgrade by Hambrecht & Quist.
Intel, up nearly 26% on the year, fell 7 1/4 to 157 1/2 after reported downgrades by Prudential Securities and Gruntal & Co. Microsoft, up nearly 25% on the year, pulled back 4 3/4 to 82 5/8 in Nasdaq trading.
Declining issues outnumbered advancers by a 12-7 margin on the New York Stock Exchange in heavy trading.
The Standard & Poor's 500-stock list, down nearly 16 points at the session's low, closed at 778.28, off 10.98 points. The NYSE's composite index fell 4.60 points to 408.74. Both measures, dominated by blue-chip and other large companies, closed at record highs Tuesday.
Among Wednesday's highlights:
* The prospect of an Intel slowdown hurt shares of such computer-related stocks as Texas Instruments, down 2 1/4 to 74 1/4; Micron Technology, down 2 at 32 1/4; and Intuit, down 2 at 26 1/8.
PeopleSoft, which beat Wall Street estimates of its quarterly earnings, lost an early gain and tumbled 4 1/2 to 45 1/4.
* Dean Witter Discover and Morgan Stanley agreed to merge in a $10-billion deal that would create the world's biggest securities firm. Morgan Stanley surged 7 7/8 to 65 1/4, while Dean Witter rose 2 to 40 5/8.
Other brokerages benefited from the merger news: A.G. Edwards rose 1 7/8 to 36 3/8 and Bear Stearns gained 1/2 to 32 3/8.
PaineWebber Group was the exception, tumbling 2 3/4 to 36 1/8.
* Aetna slumped 4 1/4 to 78 after reporting a big fourth-quarter loss related to its purchase of US Healthcare.
In the commodities market, gold prices slid to the lowest levels seen in more than three years before staging a modest late rally.
On the New York Mercantile Exchange's Comex division, April gold closed unchanged at $346.40 an ounce, but not before posting a new contract low of $344.30.
Overseas, London's FTSE-100 index rose 20.6 points to 4,281.5, a record close. Tokyo's Nikkei average finished 128.36 points, or 0.70%, lower at 18,185.97.