NEW YORK (CNNfn) - The Dow Jones industrial average plunged Thursday, dropping to an intraday low below 10,000, as investors sold the index's drug makers, consumer products firms and financial stocks to chase higher returns in technology.
This asset shift into so-called new economy stocks drove the tech-heavy Nasdaq composite index to its 11th record high of the year.
"When the Federal Reserve is in a (interest rate) tightening mode it's difficult to get excited about old economy stocks," Art Hogan, chief market strategist at Jefferies & Co., told CNNfn, referring to many of the Dow components. Investors, he said, continue to be enamored with tech stocks, perceived as immune to higher interest rates.
The Dow Jones industrial average sank 133.10 points, or nearly 2 percent, to 10,092.63, extending Wednesday's 79.11 point slide. In a volatile session, the index fell as low as 9,942.78, or 289 points, its first dip into four-digit territory since Oct. 18. 
"No one wants these old-time stocks," said Donald Selkin, chief investment strategist at Joseph Gunnar, referring to Dow firms such as Johnson & Johnson, Coca-Cola and McDonald's. "People realize the only way to make money is with these new-era (technology) stocks."
As such, the Nasdaq gained 67.32 points to 4,617.65, its second straight record. The broader S&P 500 lost 7.65 points to 1,353.04.
"The Nasdaq is simply crowding out the rest of the market," said Richard Cripps, chief market strategist at Legg Mason. "If you are a portfolio manager, you have to own some of these (technology) names."
 Still, more stocks fell than rose, with losers beating winners 2,014 to 1,025 on the New York Stock Exchange, where a heavy 1.1 billion shares changed hands. Nasdaq decliners topped advancers 2,308 to 1,851 on volume of 1.9 billion.
In other markets, Treasury securities rose and the dollar fell against the yen but gained versus the euro.
Dow doldrums
The Dow is now down more than 12 percent this year -- but the Nasdaq is up 13 percent, lifted as investors snap up the technology stocks expected to lead the economy's growth.
The blue-chip index has fallen steadily as investors dump its financial, drug and industrial stocks seen as sensitive to higher interest rates. The Federal Reserve tightened credit four times since June. And analysts expect more rate hikes ahead.
"The Dow components are weak because the Fed is threatening to slow the economy down," said Larry Wachtel, market analyst at Prudential Securities. "Its cyclical components are the ones that are most sensitive to that."
Illustrating technology's presumed immunity to higher interest rates, 40 of the 100 largest Nasdaq stocks have no long-term debt, Joseph Gunnar's Selkin said. This means that tech firms, unlike most companies, don't need the bond market to raise money.
Further, earnings among technology companies are expected to far surpass those of other sectors.
Among the day's tech winners, Dell (DELL: Research, Estimates) rose 1 to 42-3/8, JDS Uniphase (JDSU: Research, Estimates) gained 22-1/2 to 258, and 3Com (COMS: Research, Estimates) climbed 5-3/8 to 83.
But 24 of the Dow's 30 stocks fell Thursday, with only Intel (INTC: Research, Estimates) showing significant gains. The world's biggest chipmaker rose 5-3/16 to 114-1/4 after influential Robertson Stephens analyst Dan Niles raised his price target on Intel to $150.
Leading the Dow's slide, American Express (AXP: Research, Estimates) fell 9-5/16 to 128-13/16, Johnson & Johnson (JNJ: Research, Estimates) lost 3-31/32 to 72-5/32, and Wal-Mart (WMT: Research, Estimates) dipped 3-1/16 to 45-15/16.
Explaining the day's Dow rout, Legg Mason's Cripps also cited technical factors, saying that the index falling below 10,100 paved the way for further losses.
Still, David Katz, chief investment officer at Matrix Asset Advisors, is not panicking.
"If you are putting money into the stock market, you have to have a long-term horizon," Katz told CNNfn.
Earnings roll on
In earnings news, Gap (GAP: Research, Estimates) fell 1-9/16 to 23-1/8 despite posting improved net income of $413.8 million, or 47 cents a diluted share, in the quarter ended Jan. 29. British drug maker AstraZenaca (AZN: Research, Estimates) fell 2-5/8 to 31-1/2 after posting an unexpected 3 percent drop in fourth-quarter earnings.
Intuit Inc. (INTU: Research, Estimates) jumped 14-3/4 to 72-5/16 and VA Linux Systems Inc. (LNUX: Research, Estimates) fell 2-3/8 to 124-3/4. Both firms reported earnings after the close of trading Thursday. (Click here to view Intuit's results and here for VA Linux's.)
J.C. Penney Co. (JCP: Research, Estimates) fell 11/16 to 16-3/16 after dropping a blitz of bad news. The retailer announced a $530 million charge related to the closing of 40 to 45 department stores and almost 300 drugstores. It also became the first major retailer to miss estimates for the fiscal fourth quarter, ended Jan. 29.
Orders fall, jobless claims drop
In the day's economic news, durable goods orders fell in January. Separately, the number of Americans filling jobless claims dipped last week.
Earlier in the session, Jefferies & Co.'s Art Hogan called the smaller-than-expected drop in durable goods orders positive for the market, as the economy's strength continues to defy Wall Street forecasts.
He also pointed to the market's relief following Federal Reserve Chairman Alan Greenspan's testimony to Congress Wednesday. While Greenspan warned of higher interest rates to come, the Fed chief suggested he was not targeting the stock market, helping pave the way for the Nasdaq's rally. 
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