NEW YORK (CNN/Money) - A chip leader's weak forecast of the sector's growth prospects and questions about AOL Time Warner's accounting pushed tech stocks sharply lower Thursday, while gains in some consumer companies helped blue chips close little changed, a day after a sharp rally.

The Nasdaq composite fell 50.15, or 3.9 percent, to 1,240.08, erasing most of its gains from the previous session's rally, when it shot up 61 points. The Standard & Poor's 500 index lost 4.75 to 838.68.

After gyrating wildly in a 368-point range, the Dow Jones industrial average ended the day only 4.98 points lower at 8,186.31, losing little of the previous session's gains. On Wednesday, the 30-component Dow, the world's most widely watched stock average, jumped 488.95 points and 6.35 percent, its second-biggest one-day point gain ever and its biggest percentage increase since shortly after the October 1987 crash.

After the close of trade, fiber-optics component supplier JDS Uniphase (JDSU: down $0.48 to $2.53, Research, Estimates) posted a nearly $1 billion loss in its fiscal fourth quarter. Excluding a one-time charge, the company reported a loss of 10 cents a share, versus a profit of 2 cents in the year-earlier period, due to further declines in the telecom sector. Analysts expected a loss of 3 cents per share. The company also said first-quarter results would miss current estimates.

No major companies are due to report quarterly results on Friday.

Chip and chip-equipment makers traded sharply lower Thursday after Taiwan Semiconductor's (TSM: down $2.06 to $9.08, Research, Estimates) chairman said a recovery in demand from the industry's worst year on record is stalling, and that sales this month will fall from a year earlier. The company also reported weaker-than-expected quarterly profits and said it will cut this year's spending on new equipment to less than $2 billion from $2.6 billion.

"Taiwan Semiconductor made cautious comments on the sector and they have a large market share and also a lot of influence psychologically," said Cristina Osmena, a semiconductor analyst at Needham & Co. "Friday, we may see a little bounce up, but generally this group is in a position to be jittery for the next few months. The comments from the chairman are intensifying that today [Thursday]."

Intel (INTC: down $1.22 to $17.48, Research, Estimates), Applied Materials (AMAT: down $2.32 to $14.23, Research, Estimates) and KLA-Tencor (KLAC: down $3.88 to $38.45, Research, Estimates) were among the companies falling sharply on the news. The Philadelphia Semiconductor Index, or the Soxx, declined 10 percent.

"You have Taiwan Semi saying that future orders look weak and that's indicative of a lot of companies," said Walter Winnitzki, a technology analyst at First Albany. "You just had Sun Microsystems (SUNW: down $0.35 to $3.70, Research, Estimates) return to profitability, but then take it back for the next quarter. All these comments show that any tech recovery is probably pushed back until 2003."

Shares of AOL Time Warner (AOL: down $1.76 to $9.64, Research, Estimates) fell after the disclosure that the Securities and Exchange Commission has started a fact-finding inquiry into the media company's accounting. Salomon Smith Barney led the list of brokerage firms downgrading the stock after the news.

The company also reported second-quarter earnings of 24 cents a share, 2 cents better than expected. AOL is the parent company of CNN/Money.

"Investors are looking at tech and saying that any gains in the industry will lag a broader recovery. That's true generally, and it's maybe especially prominent right now," said First Albany's Winnitzki.

Gains in some of the consumer companies, such as Johnson & Johnson (JNJ: up $1.00 to $48.70, Research, Estimates) and Procter & Gamble (PG: up $2.77 to $85.02, Research, Estimates), helped give the Dow some strength, but the tech components, Microsoft (MSFT: down $3.40 to $42.83, Research, Estimates) and Intel, declined, as did the two retailers, Home Depot (HD: down $1.87 to $28.85, Research, Estimates) and Wal-Mart Stores (WMT: down $0.94 to $47.00, Research, Estimates).

Another factor in trading: the SEC has launched an investigation into Citigroup (C: up $0.06 to $29.65, Research, Estimates) and J.P. Morgan Chase's (JPM: down $0.95 to $22.35, Research, Estimates) potential Enron ties, a person familiar with the probe told the Bloomberg news service.

Not all the news was bad news.

Morgan Stanley upgraded biotech Amgen (AMGN: up $4.85 to $41.94, Research, Estimates) after it reported a higher second-quarter profit of 38 cents per share that beat analysts' estimates by 4 cents, due to strong sales of its anemia and infection-fighting drugs. Amgen also raised its 2002 earnings-per-share growth forecast.

In addition, copier maker Xerox (XRX: up $0.85 to $6.20, Research, Estimates) returned to profitability after four straight money-losing quarters, reporting second-quarter earnings of 12 cents a share, well above estimates.

Dow component and No. 1 photographic products company Eastman Kodak (EK: down $0.29 to $28.10, Research, Estimates) reported sharply lower second-quarter earnings that nonetheless topped analysts' estimates. Goldman Sachs upgraded Dow component and chemicals maker DuPont (DD: up $1.32 to $41.60, Research, Estimates) to "trading buy" from "market perform."

Regional phone service providers SBC Communications (SBC: up $1.29 to $26.01, Research, Estimates), BellSouth (BLS: up $0.27 to $22.99, Research, Estimates) and Verizon Communications (VZ: down $0.25 to $27.60, Research, Estimates) advanced after Morgan Stanley reiterated its "overweight" rating on the three companies within a broader upgrade of the telecom wireline services group.

But UBS Warburg downgraded shares of wireless technology company Qualcomm (QCOM: down $3.48 to $25.62, Research, Estimates) to "hold" from "buy," citing worries about lower telecom industry demand for chipsets. After the close of trade, the company reported a profit of 24 cents per share for its June quarter, 2 cents better than what analysts had expected and a penny above what it earned a year earlier.

"Whether yesterday [Wednesday] was really the big capitulation day remains to be seen. The market is probably going to drift in the next week or so as it finds its footing after the run-up," said Peter Cardillo, director of research at Global Partners Securities.

In economic news, the demand for durable goods -- products made to last three years or more, such as cars and computers -- fell 3.8 percent in June following a revised 0.6 percent gain in May.

A somewhat confusing picture emerged from the housing market. June sales of new homes, a figure issued by the government, showed a 0.5 percent rise to 1.001-million-unit annual rate, above estimates and May's revised annualized rate of 996,00 units. Sales of existing homes -- released by the National Association of Realtors -- fell 11.7 percent to a 5.07-million-unit annual rate. Economists were expecting the rate to remain unchanged at 5.75 million units.

But on a brighter note, the number of Americans filing new claims for unemployment benefits fell to 362,000 last week from a revised 383,000 the previous week. Economists were expecting a reading of 385,000.

European markets closed higher, but Asian stocks couldn't hold their gains, closing lower.

Treasury prices rose, pushing the 10-year note yield down to 4.43 percent. The dollar was lower versus the yen and euro. Light crude oil futures fell 10 cents to $26.77 a barrel. Gold fell in U.S. trading.

Market breadth was mixed. On the New York Stock Exchange, advancers topped decliners by more than 9-to-7 as 2.39 billion shares changed hands. On the Nasdaq, losers beat winners by 5-to-1 as 2.30 billion shares changed hands.