NEW YORK (CNN/Money) - U.S. stocks fell sharply Monday, losing the momentum of the previous week's strong gains, as investors took in heightened fears about global terrorism and the potential impact of a slowdown in the economic recovery.

The Nasdaq composite index lost 39.80, or 2.3 percent, to close at 1,701.59, snapping a five-day winning streak. The Dow Jones industrial average fell 123.58, or 1.2 percent, to close at 10,229.50. The Standard & Poor's 500 index gave back 14.71, or 1.3 percent, to close at 1,091.88.

"It was extremely slow. It was a very quiet day. There was selling after a few good weeks and Vice President Cheney's comments certainly added to it," Ted Weisberg, a trader at Seaport Securities, told CNNfn's Street Sweep. "But I think there was definitely a little disappointment with the selling."

Last week, the Nasdaq and the Dow posted their biggest five-day advances in more than a year. But the new week took a different path.

"You've got to expect a little two steps forward, one step back when you have a strong rally," said Michael Carty, principal with New Millennium Advisors. "Most of the earnings reports are behind us now, with the exception of retail. We're going to need more comments like the ones from Dell (DELL: down $0.72 to $27.23, Research, Estimates) [Computer] last week -- telling us that things are going to be better -- before investors are going to be willing to believe that a rally is here to stay."

One factor in the market's retreat is Vice President Dick Cheney. On Sunday's edition of NBC's "Meet the Press," he said that the likelihood of another terrorist attack against the United States is "almost certain" and that it is "not a matter of if, but when."

"Stocks had a nice run and now we're seeing across-the-board profit taking, which is healthy," said Matt Ruane, director of listed trading at Gerard Klauer Mattison. "Reports of Cheney's comments didn't help, but we would be seeing a little selling anyway."

Investors may also be concerned about reports of partisan squabbling among Republicans and Democrats over the amount of information President Bush had about the terrorist attacks prior to Sept. 11, New Millennium Advisors' Carty said.

Middle East tensions continue to rise. In Israel, Sunday brought a suicide bombing that killed three people and wounded another 53. On Monday, a second bombing killed only the bomber. In Afghanistan, where U.S. troops are battling al-Qaeda forces believed to be responsible for the Sept. 11 attacks against New York and Washington, a U.S. Special Forces member was killed Monday when a patrol came under enemy fire.

On the economic front, the Conference Board's index of leading economic indicators for April showed a sharper-than-expected decline of 0.4 percent. Economists surveyed by Briefing.com forecast a drop of 0.2 percent, following March's 0.1 percent gain.

In corporate news, Computer Associates (CA: down $0.36 to $17.20, Research, Estimates) is under Securities and Exchange Commission investigation as regulators assess whether the software maker improperly recorded more than $500 million in revenue.

"The CA investigation is an ongoing thing. They've had problems long before accounting scrutiny was fashionable, so the impact of that is muted," said Douglas Altabef, managing director at Matrix Asset Advisors. "There is the sense that the market wants to shrug off the bad news."

Shares of specialty coffee retailer Starbucks (SBUX: down $0.75 to $23.31, Research, Estimates) were under pressure after a Barron's article said the company's earnings growth may slow due to high labor and expansion costs and to increased coffee prices.

One notable exception to the downtrend was troubled telecom WorldCom (WCOM: up $0.14 to $1.49, Research, Estimates), which has reached an agreement on $1.5 billion in financing, according to the Financial Times. The deal will give the company some financial leeway while it negotiates a larger deal.

Home improvement retailers also hammered out some gains after the No. 2 company in the sector, Lowe's (LOW: up $2.04 to $46.80, Research, Estimates), posted better-than-expected quarterly earnings. The industry leader, Home Depot (HD: up $0.41 to $48.50, Research, Estimates), is scheduled to report its results early Tuesday.

The otherwise weak stock environment was good news for Treasurys, which rose at midday, pushing the 10-year note yield down to 5.21 percent.

In global trade, European markets were mixed at the close, while Asian markets finished mostly lower. The dollar was weaker against the euro and the yen. Light crude oil futures rose 8 cents to $27.23 a barrel in New York. With weak stocks and a weak dollar, investors parked some money in gold, with futures rising more than $5 to $316 an ounce.

Market breadth was negative and extremely light. On the New York Stock Exchange, decliners topped advancers 5-to-3 as 986 million shares changed hands; it was the lowest volume day of the year. On the Nasdaq, losers beat winners by almost 2-to-1 as almost 1.42 billion shares traded.

"We're seeing the reality of a market that does not have any great conviction. Anyone who expected a linear, 'We're off to the races' kind of tone after last week was mistaken," said Matrix Asset Advisors' Altabef.