The Dow Jones industrial average fell 44.39 to 5,346.55 after shedding an early gain of about 43.
Decliners led advancers by 1,692 to 724 on the New York Stock Exchange. NYSE volume totaled 419.20 million shares vs. 327.25 million yesterday.
The beleaguered Nasdaq market was dragged lower again by the technology sector as investors dumped computer-related shares following a slide in Microsoft.
"People still see a large number of mine fields out there," said Ned Riley, chief investment officer at Bank of Boston.
The Nasdaq ended the day down 29.69 at 1,051.70.
In other broad markets, the NYSE composite fell 3.08 to 337.14, and the S&P 500 list declined 6.90 to 626.87. The American Stock Exchange's market value index fell 6.01 to 536.96.
Some market observers said investors also were spooked by reports of bearish comments by Elaine Garzarelli, the noted Wall Street forecaster who predicted the 1987 stock market crash.
Stocks also fell despite a sharp rally in the bond market that sent the yield on the 30-year Treasury bond below 7 percent for the second time in a week.
Some analysts attributed the afternoon bond rally to optimism over the second phase of a report to Congress by Federal Reserve chairman Alan Greenspan.
The Fed chairman's comments today echoed his upbeat testimony before a Senate committee last week about the likelihood of a gradual slowdown from the second quarter's sizzling growth rate of as much as 5 percent.
On Thursday, the markets rallied after Greenspan indicated that inflation isn't enough of a threat to warrant an immediate interest rate hike.