NEW YORK (CNN/Money) - U.S. stocks fell for the third straight session Monday after Hewlett-Packard led the Dow to a triple-digit loss amid a fierce selloff in technology, energy and defense names.

Investors also fretted over the possibility of a war scenario with Iraq, damaging the recent bullish sentiment on Wall Street. Iraq has a Friday deadline to either accept or reject the most recent U.N. Security Council resolution requiring it to disarm and allow weapons inspectors back into the country.

The Dow Jones industrial average (down 178.18 to 8358.95, Charts) fell about 2 percent to close near session lows after selling accelerated in the final hour of trading. The Nasdaq composite (down 40.09 to 1319.19, Charts) saw a steep decline of almost 3 percent, while the Standard & Poor's 500 index (down 18.55 to 876.19, Charts) dropped more than 2 percent.

Hewlett-Packard and General Electric triggered the Dow's decline early in the session, while a downgrade for Oracle and weakness in semiconductor and networking stocks pummeled the Nasdaq.

Market breadth was negative on moderate volume because of the Veterans Day holiday. On the New York Stock Exchange, decliners beat advancers about 2 to 1 as 1.0 billion shares traded. On the Nasdaq, decliners beat advancers about 2 to 1 as 1.25 billion shares changed hands.

The Treasurys market was closed for Veterans Day.

Investors still seemed to be considering the implications of last week's half-point rate cut.

"I think what the half-point cut showed was that the Fed for the first time appears to be taking the situation very seriously," said Hugh Johnson, chief investment officer with First Albany. "I think investors are also still mulling the move and thinking what is it the Fed knows that they don't know. Could it be worries about a double-dip and deflation? It's this uncertainty, among other factors, that's the reason why we're down today."

But other market watchers argued to the contrary, saying that even though investors opted to sit on the sidelines, the market has greater confidence after its month-long rally and the rate cut.

"Lower interest rates increase discount financing for consumers. Also, the Republican sweep of the Senate and the House last week is construed as a positive because it's also seen as a win for market-friendly fiscal policy," said Joseph Battipaglia, stock strategist with Ryan Beck & Co.

With most of the third-quarter earnings reports out of the way and little economic data scheduled for release this week, a few analysts said the market was overbought after the extended rally and could see some deferred profit-taking this week.

The retail sector, however, is in the spotlight with Wal-Mart's quarterly results expected Wednesday in addition to the Commerce Department 's report on October retail sales. Economists surveyed by Briefing.com expect they extended September's 1.2 percent decline with a 0.2 percent drop.

Dell Computer delivers the blockbuster earnings report Thursday, expected to post a profit of 21 cents a share against last year's profit of 16 cents a share.

Hewlett-Packard (HPQ: down $1.83 to $14.85, Research, Estimates) set the ball rolling for the blue-chip meltdown after announcing that its president, Michael Capellas, was leaving the company's board to "pursue other career opportunities." Capellas is being considered for the CEO position at WorldCom, a person familiar with the situation told CNNfn Monday.

General Electric (GE: down $0.89 to $24.21, Research, Estimates) shares lost value after a published report said Warren Buffett's Berkshire Hathaway may make a bid for GE's Employers Reinsurance Corp. Duke Energy (DUK: down $1.55 to $18.41, Research, Estimates) weighed down the energy sector after announcing it had received a subpoena from Justice Department officials for information related to its trading activities in the California energy markets.

McDonald's (MCD: down $0.70 to $17.09, Research, Estimates) remained out of favor with analysts and investors. Merrill Lynch cut its 2002 and 2003 earnings estimates for the company, citing slower-than-expected gains in market share. McDonald's last week warned about its 2002 results and also announced job cuts and the closure of about 175 of its international restaurants.

Separately, credit rating agency Standard & Poor's warned it may cut its long-term debt rating for McDonald's.

Nasdaq laggards included software maker Oracle (ORCL: down $0.50 to $9.05, Research, Estimates). Deutsche Bank downgraded the stock to "hold" from "buy" on valuation concerns, saying it sees limited upside potential.

A downgrade for Starbucks (SBUX: down $0.80 to $21.77, Research, Estimates) and selling in semiconductor stocks also pressured the tech-heavy index. Goldman Sachs cut its rating on Starbucks to "in-line" from "outperform," saying the company's strong same-store sales -- or sales at stores open at least a year -- for October were strong but failed to lift the stock. Goldman also said it had valuation concerns.

Overseas, stocks tumbled in Asia, with Tokyo's Nikkei off about 2.6 percent, while European bourses fell after Deutsche Telecom warned of a whopping $28.4 billion loss for the full year.

Light crude oil futures rose 16 cents to $25.94 a barrel in U.S. trading, boosted by the escalating rhetoric over Iraq.