NEW YORK (CNNmoney) - U.S. equity indexes fell Wednesday as early stock investor confidence quickly eroded in the face of mounting anthrax fears and mixed sentiment from Federal Reserve Chairman Alan Greenspan in a Congressional address.
Tech industry leaders Intel and IBM gave markets an early burst of energy after the companies reported lower quarterly profits from the year before that nonetheless managed to meet or surpass estimates.
But bio-terrorism fears quickly took center stage, dissolving investor confidence.
Senate Majority Leader Tom Daschle, D-S.D., told a news conference that 31 people in his office - including staff members and police - have had positive nasal swabs for anthrax exposure. Daschle cautioned that this does not mean the people are infected with anthrax and stressed that all of the victims are on antibiotics and are said to be in good condition.
However, the anxiety about the bacteria led the House to adjourn Thursday for a prolonged weekend examination of offices.
Just before noon ET, New York Gov. George Pataki said anthrax spores have been found in his midtown New York City offices. Late afternoon brought news that two members of the staff of Russ Feingold, D-WI, had also tested positive for exposure. Feingold's office is located behind Daschle's.
The Dow Jones industrial average fell 151.26 to 9,232.97, or 1.61 percent; it had been up as much as 105 points early in the session. The Nasdaq composite index was down 75.73 to 1,646.34, or 4.40 percent, erasing a nearly 32-point gain. The Standard & Poor's 500 slipped 20.45 to 1,077.09, dropping 1.86 percent.
After the close of trade, computer hardware maker Apple Computer (AAPL: down $1.02 to $16.99, Research, Estimates) said it earned 18 cents a share for the fiscal fourth-quarter, topping estimates, but warned about its first quarter.
No. 2 handheld computer maker Handspring (HAND: down $0.32 to $2.66, Research, Estimates) reported wider first-quarter losses that missed estimates.
Asian markets finished higher Wednesday, with Tokyo's Nikkei index up more than 1 percent. European stocks backed off early gains, but still remained in the black by late afternoon.
Treasury prices were mixed, with the 10-year note yield standing at 4.56 percent. The dollar was flat against the yen and down versus the euro.
Market breadth was negative. On the Nasdaq, decliners edged advancers by a 3-to-2 margin as 2.27 billion shares traded. On the New York Stock Exchange, losers topped winners by a nearly 2-to-1 margin as 1.42 billion shares traded.
Anthrax fears accelerate
New anthrax reports have surfaced daily, sometimes with a clear market impact, sometimes with little or no effect.
"The magnitude of how many people were involved today caught people's attention in a way it hasn't before. People are no longer convinced these attacks are random and they are starting to worry about how they will affect the economy," David Briggs, head of equity trading, Federated Investors, told CNNfn's Street Sweep.
But some analysts argued that the surge in recent weeks dictated a necessary pull back, with or without any bio-terrorism concerns.
"We've had a strong run-up in the last few weeks, so some selling is natural. It may have happened anyway, but the anthrax scare today (Wednesday) really exacerbated it," Mark Herskovitz, Dreyfus Premier Technology Growth fund chairman, Dreyfus Corp., told CNNfn.
Also creating a stir was Federal Reserve Chairman Greenspan, who told a joint Congressional committee that he's confident the economy will recover from last month's terrorist attack.
But he cautioned that "before the recovery process gets under way, stability will need to be restored to the American economy and to others around the world." (388K WAV) (388K AIFF)
Donald Selkin, chief investment strategist at Joseph Gunnar, said: "It's a lock that the Fed will lower interest rates at the next meeting, but people were looking for more positive comments."
Selkin said Wednesday's anthrax news may have hit harder because shutting down Congress, however temporary, delays the passage of an economic surplus package with bipartisan support.
Philip Morris, Citigroup among Dow issues reporting
U.S. markets posted strong initial gains in response to computer hardware maker IBM (IBM: up $1.05 to $102.90, Research, Estimates) reporting lower third-quarter earnings that topped forecasts. No. 1 chipmaker Intel (INTC: down $0.39 to $24.57, Research, Estimates) said profit fell to 10 cents per share, but that was in line with estimates.
Of the 30 Dow Jones industrial average components, 11 have reported their most recent quarterly results. Only one, Caterpillar, has missed estimates.
Among the Dow components reporting was paper products maker International Paper (IP: down $1.28 to $36.32, Research, Estimates), which saw third-quarter profit slide from a year earlier but nonetheless top estimates substantially.
Also among Dow issues:
-- Tobacco products marketer Philip Morris (MO: down $0.68 to $50.01, Research, Estimates) saw third-quarter earnings rise from the year-earlier period, meeting expectations.
-- Citigroup (C: up $0.47 to $46.56, Research, Estimates) posted a third-quarter profit of 63 cents a share, down from a year earlier but in line with forecasts. Fellow financial services company J.P. Morgan Chase (JPM: up $0.66 to $34.60, Research, Estimates) reported earnings of 50 cents a share, topping estimates.
-- Johnson & Johnson (JNJ: up $1.00 to $57.77, Research, Estimates) also showed strength, as analysts offered positive comments one day after the health-care products company reported improved third-quarter earnings that bettered estimates.
AOL, EMC lower
Computer software and hardware, semiconductor and biotech issues were the biggest losers on the Nasdaq and the New York Stock Exchange. The Philadelphia Semiconductor index, or the Soxx, fell more than seven percent.
Data storage software maker EMC (EMC: down $2.24 to $11.21, Research, Estimates) posted a third-quarter loss that was worse than expected, while sector mate Veritas Software (VRTS: down $3.17 to $26.26, Research, Estimates) reported a third-quarter profit that edged estimates.
Business software maker i2 Technologies (ITWO: down $1.40 to $4.29, Research, Estimates) posted a loss in line with forecasts, but was dumped by investors nonetheless.
Sector mate Siebel Systems (SEBL: down $4.16 to $17.38, Research, Estimates) caused a stir in the last 20 minutes of trade after the company reported third-quarter earnings of seven cents a share, missing estimates by two cents.
Late Tuesday, two chipmakers reported results. RF Micro Devices (RFMD: down $5.93 to $18.49, Research, Estimates) earned a penny per diluted share, down from a year earlier but beating expectations. Rambus (RMBS: down $2.62 to $9.10, Research, Estimates) earned 6 cents a share, 2 cents more than estimates.
Media conglomerate AOL Time Warner (AOL: down $2.69 to $30.81, Research, Estimates) said third-quarter earnings rose from the same period a year earlier, topping expectations. But analysts lowered their estimates for the company, the parent of CNNmoney.
DSL equipment maker Paradyne (PDYN: up $1.30 to $3.42, Research, Estimates) said third-quarter earnings were 5 cents a share, 18 cents better than expected. Sector mate Copper Mountain (CMTN: up $0.23 to $1.34, Research, Estimates) rallied on the news.
Pharmaceutical company Pfizer (PFE: up $0.55 to $41.65, Research, Estimates) said third-quarter earnings rose, topping estimates.
Automaker Ford Motor (F: down $0.55 to $17.13, Research, Estimates) posted a third-quarter loss in line with expectations.
Merrill to cut 15 percent of work force
No. 1 brokerage Merrill Lynch (MER: down $0.96 to $44.23, Research, Estimates) said it may cut up to 10,000 more jobs, or 15 percent of its work force.
Analysts weighed in with some cautionary comments on Eli Lilly (LLY: down $4.00 to $75.00, Research, Estimates) after a U.S. advisory panel was split on approving a drug whose success is factored significantly into brokerage earnings estimates.
In an economic report issued before the markets opened, housing starts rose 1.7 percent in September to an annual rate of 1.57 million units, the government said. That was stronger than expected. Building permits fell 3 percent. 
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