NEW YORK (CNNfn) - Investors broke a three-session winning streak Tuesday to sell off technology stocks, sending the Nasdaq composite index plunging more than 4 percent.
The Dow Jones industrial average slumped after AT&T warned that its sales growth and profit would be weaker than expected.
 Analysts said there was no fresh fundamental news to support the selling but noted that the recent rally was overdone. "I think it was just a general sell-off after a very nice rally," agreed Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum. "The rally lacked volatility and conviction. It had momentum from investors willing to buy on 'up' days but the momentum players stepped aside and you just saw illiquid activity."
The Nasdaq shed 172.63 points, or more than 4 percent, to 3,785.45. The index has risen more than 22 percent since its low of 3,227 on April 17 and, after Tuesday's sell-off, is still up 18 percent.
The Dow slipped 80.66 points to 10,731.12. The broader S&P 500 lost 21.96 to 1,446.29.
 Volume was moderate while market breadth stayed negative. Decliners beat advancers on the New York Stock Exchange 1,697 to 1,290, as more than 999 million shares changed hands. Losers topped winners on the Nasdaq 2,611 to 1,506, on volume of more than 1.4 billion shares.
In currency markets, the dollar strengthened against the euro but fell versus the yen. Treasury securities firmed.
AT&T leads Dow lower
Tuesday's one major Dow component to post results was a jarring reminder to investors that Wall Street is no longer satisfied with just meeting expectations.
AT&T (T: Research, Estimates) fell 7-1/8 to 41-7/8 after posting first-quarter earnings before extraordinary items of 53 cents a share, matching the consensus of analysts.
 The report makes AT&T one of the weaker earnings performers among Dow components. Of the 25 other Dow components to report so far, 23 have exceeded the First Call estimates, and the other two -- Philip Morris Cos. (MO: Research, Estimates) and Procter & Gamble Co. (PG: Research, Estimates) -- met expectations.
"(AT&T) soured the tone," said John Manley, investment strategist with Citibank Salomon Smith Barney. "People are trying to get a sense of how bad things will be (with Microsoft) and they're stepping aside to see if technology is still accelerating on a profitability basis."
Technology issues were unable to hold onto their previous momentum. Oracle (ORCL: Research, Estimates) shed 1-7/8 to 77-13/16, Intel (INTC: Research, Estimates) slipped 5-29/32 to 121-7/32, and Microsoft (MSFT: Research, Estimates) dropped 3-9/16 to 69-7/8.
Meanwhile, financial stocks, widely seen as sensitive to interest rate fluctuations, fell sharply under selling pressure. J.P. Morgan (JPM: Research, Estimates) dropped 2-1/4 to 127-1/2, and American Express (AXP: Research, Estimates) slipped 3-5/16 to 148-1/16.
"I don't think that anyone is immune to interest rates," Michael Carty, stock market strategist at New Millenium Advisors, told CNNfn's market coverage. "Although the Justice Department said it wanted to divide (Microsoft) into two parts, the judge seemed to be disinclined to do that. However, if the Justice Department does decide to do that, we're going to have a difficult time in the near-term."
 Microsoft plans to ask the judge overseeing the landmark antitrust trial for permission to see hundreds of pages of government records and to call witnesses to argue against a recommended breakup, according to a published report Tuesday.
After the market closed Friday, the U.S. Department of Justice and 17 of 19 states that filed antitrust actions against the software leader submitted their plans to split Microsoft into two companies.
Inflation concerns weigh on investors
As investors turn their attention to where interest rates may go, all eyes are watching economic indicators for an idea of where to move money ahead of the Federal Reserve's May 16 meeting on monetary policy.
Terence Gabriel, stock market strategist for IDEAglobal.com, told CNNfn's Talking Stocks that the markets will bide their time until the May 16 FOMC meeting -- which investors now expect to produce a one-half percentage point rate increase. (251K WAV) (251K AIF)
That sentiment grew after a senior Federal Reserve official who has previously been reluctant to raise interest rates voiced concern over inflation and the U.S. economy's ability to grow without overheating.
On Monday, Federal Reserve Bank of Dallas President Robert McTeer said U.S. inflation appeared to be picking up, and described the recent release of data on March consumer prices, which surged 0.7 percent, as "a terrible number."
"Stocks have put together a respectable run over the past few sessions, but we're not getting that warm and fuzzy feeling this time. With inflation fears kicking around and the April jobs data looming on Friday's horizon, skepticism is in the air," wrote Bryan Piskorowski, market analyst with Prudential Securities, in a note to clients.
In an economic report issued Tuesday, new home sales soared in March, suggesting the Federal Reserve's five interest rate hikes since last June are not slowing the housing market.
Sales of new homes rose to an annual rate of 966,000 in March, the Commerce Department said. That's well above February's revised 924,000 new homes, and above the 900,000 expected by analysts surveyed by Briefing.com.
Separately, a key forecaster of the U.S. economy rose. The Index of Leading Economic Indicators gained 0.1 percent in March, in line with forecasts, the Conference Board said.
Time Warner Cable reinstates ABC
The ABC television network remained off Time Warner Inc.'s (TWX: Research, Estimates) cable systems in 11 U.S. cities for most of Tuesday after the media company failed to reach a new transmission agreement with the network's parent, Walt Disney Co. (DIS: Research, Estimates).
Tuesday afternoon, Time Warner, the parent company of CNNfn, made a new 10-year offer to Disney and reinstated ABC's transmission signal. Time Warner fell 2-7/8 to 86 and Disney rose 1 to 43. 
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