NEW YORK (CNNfn) - U.S. stocks fell sharply in early trading Thursday amid rising fear the world is headed for a recession, a tumbling dollar and free-falling overseas stock markets.
Shortly after 10 a.m. the Dow Jones industrial average was down 68.74 points at 7,672.95, after losing about 100 points in the first half hour of trading. Trading volume on the New York Stock Exchange reached 166 million shares, with declines leading advances 2,400 to 313.
The Nasdaq Composite, bruised from three straight days of painful losses, once again led the pack, shedding 61.06 points, or 4.2 percent, to 1,401.55. The broad S&P 500 index fell 25.04, or 2.6 percent, to 945.64.
Overnight, stocks on Tokyo plunged nearly 6 percent as the yen's spectacular climb against the dollar continued. After losing 8 percent against the Japanese currency Wednesday, the dollar plunged another 4 percent overnight. But talk in the market that the Federal Reserve was looking at currency exchange rates, a possible signal the Fed is bracing for direct market intervention in defense of the dollar, helped pull the greenback off its lows.
Meanwhile, European stocks melted away, despite a 1/4 of a percentage point interest rate cut by the Bank of England. Just like the Federal Reserve's 1/4 point easing two weeks ago, the BOE's rate cut was deemed by market players as too little too late to stave a looming economic slowdown.
Sounding a slightly bearish note, Goldman Sachs stock strategist Abby Joseph Cohen, one of the market's most resilient and respected bulls, lowered her earnings projections for S&P 500 companies. Cohen left her year-end projections for the Dow industrials and the S&P 500 intact, however, and said a recession was unlikely for the U.S. economy.
"We expect stock prices to reach new high levels during 1999," she wrote in a research report.
But Prudential Securities chief stock guru Greg Smith was a lot less optimistic about the market's near-term future, cutting both stock and bond allocations in his model portfolio and raising his cash position to 20 percent from 5 percent.
The bond market was mixed. The benchmark 30-year Treasury bond tumbled 18/32 of a point in price, raising the yield to 4.89 percent. But the rest of the market traded higher, still attracting buyers amid the stock market melee.
Smell of blood
In stocks, market bears smelled blood and sharpened their claws on battered technology, Internet, financial and airline shares, even defensive drug stocks, as well as the stocks of companies whose earnings disappointed expectations.
On the Nasdaq, Dell Computer (DELL) plunged 5-9/16, or 11 percent, to 45, Intel (INTC) lost 5/16 to 78-3/4, Microsoft (MSFT) shed 5-1/8 to 89 and Cisco Systems (CSCO) tanked 15/16 to 42-15/16.
Shares of Yahoo! (YHOO), the Internet portal whose third-quarter earnings, released late Wednesday, came in sharply above expectations, tumbled 13-3/8, or more than 11 percent, to 101. Adding to sharp losses from the day before, shares of online book seller Amazon.com (AMZN) plunged 10-7/16, or more than 11 percent, to 83.
Among technology leaders on the Big Board, Dow component IBM (IBM) plunged 1-5/16 to 119-7/16, Compaq Computer (CPQ) lost 9/16 to 24-3/8 and America Online (AOL), the world's largest Internet service provider, shed 6-13/16 to 85-3/16.
In the financial services corner, Citigroup (CCI), the freshly formed union of Citicorp and Travelers, plunged 1-7/8 to 29-7/8. The financial conglomerate, on its first morning of existence, warned investors that third-quarter income of the combined company is likely to decline, its Salomon Smith Barney trading unit will report a third-quarter net loss of about $325 million, and Citibank's corporate banking unit will lose about $130 million. Still, the company said 1999 core business results will be above actual pro-forma earnings reported for 1998 and 1997.
Elsewhere in the money sector, Chase Manhattan (CMB) fell 1-11/16 to 38-9/16, BankAmerica (BAC) lost 1-7/16 to 47-1/2 and Bankers Trust (BT) shed 2 to 47-3/16.
Dow member J.P Morgan (JPM) lost 3/8 to 74-1/8. American Express (AXP) shed 1-1/4 to 72. The stock may get help by Wednesday's announcement of an antitrust lawsuit by the Justice Department against Amex's biggest credit-card competitors, MasterCard International and Visa USA.
Airline stocks also shed blood, following Merrill Lynch downgrades for most of the sector's most prominent members. Shares of American Airlines parent AMR (AMR) lost 3-3/4 to 47-3/16, Delta Air Lines (DAL) shed 5-5/16 to 83 and United Airlines (UAL) fell 2-3/4 to 58. US Airways (U) fell 3-7/8 to 38-1/8. The Dow transports index dropped 107.89, or 4.4 percent, to 2,339.96. 
-- by staff writer Malina Poshtova Zang
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