NEW YORK (CNNfn) - The Nasdaq composite index plunged more than 130 points Thursday, coming within 30 points of its key 3,000 level after downgrades in the semiconductor sector sparked a hefty sell-off in the tech sector as concerns about profit growth drove investors to the sidelines.
"With Merrill [Lynch's] downgrades, it's one more black mark on the technology sector and the fact that valuations are under attack," said Peter Coolidge, senior trader with Brean Murray & Co.
The underlying uncertainty about the outcome of the presidential election and the economy also continued to rattle investors.
 The Nasdaq composite index tumbled 133.61 points, or more than 4 percent, to 3,031.88. The index is now within nearly 30 points of its key 3,000 level, which it breached at the start of this week when it closed at 2,966.74.
The Dow Jones industrial average didn't fare much better. After a modest pop into positive territory at midday, the blue chips succumbed to broad selling.
"I think it's been a tough time and you've got to be careful. A lot of people have lost a lot of money over the past six months and they're not anxious to put money back into the market," William Roe, senior portfolio manager at Melhado Flynn & Associates, told CNNfn's market coverage. "It's like having a toothache and having another toothache – it's something we've got to overcome."
 The Dow Jones industrial average slid 51.57 points to 10,656.03, while the S&P 500 shed 17.72 to 1,372.32.
Market breadth was negative. While volume was lighter than in recent sessions, that may not be consistent with setting the stage for a rally.
"Volume is definitely a weapon of the bull," Vince Farrell, chief investment officer at Spears Benzak Salomon & Farrell, told CNNfn's market coverage. "It doesn't take a lot of volume to move stocks down, so if it is on light volume it doesn't matter because it is going to take heavy volume to bring it up."
Decliners beat advancers on the New York Stock Exchange 1,673 to 1,195 as more than 939 million shares were traded. On the Nasdaq, losers topped winners 2,705 to 1,172 as more than 1.5 billion shares changed hands.
In other markets, Treasury securities edged higher. The dollar edged higher against the euro and yen.
Semi sector takes a beating
Semiconductors bore the brunt of the selling after Merrill Lynch made cautious comments about the sector, citing an inventory buildup, which could temper profit growth. The comments sent the Philadelphia Semiconductor index falling more than 5 percent.
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"We had some downgrades in the chip sector, so there are some worries about inventories and decelerating growth that's weighing on technology," Robert Harrington, head of listed equity trading at UBS Warburg, told CNNfn's market coverage.
Intel (INTC: Research, Estimates) fell $1.38 to $40.13, PMC Sierra (PMCS: Research, Estimates) lost $18.13 to $113 and Altera (ALTR: Research, Estimates) shed $2.56 to $30.16. Applied Micro Circuits (AMCC: Research, Estimates), a network chip maker, tumbled $10.16 to $60.94 after negative analyst comments.
Merrill Lynch cut its intermediate-term rating for Applied Micro Circuits to "accumulate" from "buy".
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And semiconductor equipment maker Applied Materials (AMAT: Research, Estimates), slipped $1.13 to $41.63 after beating fourth-quarter forecasts. The company earned 77 cents per share, up 119 percent from 37 cents per share a year earlier and beating forecasts of 76 cents a share. Cautious guidance weighed on the stock.
 In other company news, Dow component AT&T (T: Research, Estimates) announced plans late Wednesday to spin off its holdings in Liberty Media Group (LMG.A: Research, Estimates), its fast-growing media and technology operation, to help alleviate competitive and conflict-of-interest concerns.
Shares of Liberty Media rose $1 to $16.63, while AT&T gained 19 cents to $20.75.
 The Dow floundered. International Paper (IP: Research, Estimates), Alcoa (AA: Research, Estimates) and DuPont (DD: Research, Estimates) led the selling, while buying in Boeing (BA: Research, Estimates) helped keep a lid on the losses.
International Paper fell $1.69 to $34.31, Alcoa shed $1.31 to $27.94 and DuPont lost $1.81 to $41.63.
Moderating the severity of the losses, Boeing gained $2.19 to $65.75.
Battle of the ballot still a worry
Election anxiety had nervous investors selling tech issues amid fears that profit growth for some of these beaten-down issues may not regain strength.
The vote counting and legal skirmishes in the U.S. presidential election was again watched by investors, with further courtroom developments centered around Democrats' effort to include manual recounts in three counties as part of Florida's vote total.
Florida's 25 electoral votes will determine whether the next president is Texas Gov. George W. Bush or Vice President Al Gore; the two men are separated by 300 votes out of 6 million cast.
Click here for CNN.com's election coverage
"The [election] uncertainty makes the investment community a little nervous," UBS Warburg's Harrington said. "I think they just want closure one way or another and then the markets will move higher short term."
Beyond Fed, CPI shrugged off
The Labor Department's closely watched Consumer Price Index showed retail prices increased 0.2 percent in October. That was in line with the consensus forecast of economists surveyed by Briefing.com. The core CPI, which excludes often-volatile food and energy prices, also rose 0.2 percent in October, in line with economists' forecasts.
Investors and analysts continue to watch economic data to gauge the pace of the economic slowdown, but the Federal Reserve gave no sign of veering from its course.
 The Federal Reserve's monetary-policymaking body left short-term interest rates unchanged Wednesday, saying it continues to see risks of accelerating inflation. While the decision on rates was no surprise, some had hoped the policymakers would signal a lessening concern of inflationary pressures.
"Some late talk was circulating that they would move their bias. We also saw the market rallying strongly into the decision and we sold off on the disappointment," Donald Selkin, chief investment strategist with Joseph Gunnar, told CNNfn's Before Hours. "I believe we're more on the way to a soft landing."
Tom McManus, stock market strategist for Banc of America Securities, told CNNfn's In the Money that he doesn't see any real strong push for the stock markets until the Fed begins cutting interest rates. (419K WAV) (149K AIFF). 
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