Stocks fell Friday as uneasy investors opted for safety and took profits for a second straight day amid worries about crushing telecom debt. 

The two-day selloff wasn't surprising given the triple-digit surge enjoyed by blue chips and technology stocks on Wednesday. But the drop was disappointing for investors who'd hoped the market would be able to keep more of its big advance, and that the rally signaled a longer-lived upturn

The blue-chip Dow Jones industrial average lost 97.50 points, or 0.97 percent, to 9,939.92. The broader Standard & Poor's 500 Index dropped 18.02 points, or 1.68 percent, to 1,054.99. The technology-laced Nasdaq Composite Index fell 49.57 points, or 3.00 percent, to 1,600.92.

For the week, the Nasdaq shed 0.75 percent, the Dow lost 0.67 percent and the S&P 500 fell 1.7 percent.

"People are intimidated that they are unable to guess this market," said Stanley Nabi, managing director at Credit Suisse Asset Management, which oversees $269 million worldwide. "Whether you are a professional or trader or speculator you have egg on your face. There is fear of a liquidity crisis at telecoms, fear of a weak dollar, fear of higher interest rates, fear over more confrontation in the Middle East."

Investors, bruised by weeks of selling, for the second day locked in gains from the hefty rally on Wednesday which had lifted the technology-rich Nasdaq almost 8 percent.

Technology shares led the drop as the euphoria over better earnings from Web gear giant Cisco Systems Inc. fizzled out. Telecom stocks bore the brunt of the selling after WorldCom's credit rating was slashed to "junk" status.

"There are unrealized hopes and expectations," said John Davidson, president and chief executive at PartnerRe Asset Management, which oversees $4.5 billion. "In reality, the economic situation hasn't changed with the forecast of one big company. Wednesday's rally didn't change the landscape."

Technology bellwether International Business Machines Corp. (IBM) heightened fears tech spending will remain sluggish. Big Blue is poised to make its biggest job cuts in a decade, up to 9,500 positions, a source close to the situation told Reuters. The Dow component eased 25 cents to $79.68.

"People were very nervous when they heard that potentially IBM was going to lay people off," said Mark Donahoe, managing director of institutional sales trading at U.S. Bancorp Piper Jaffray. "The reality is we're not going to have as strong a recovery as some people thought."

Old Economy stocks such as fast-food giant McDonald's Corp. (MCD) and drug heavyweight Johnson & Johnson (JNJ) helped support the blue-chip Dow on hopes these companies can offer more stable quarterly profits. McDonald's rose 53 cents to $29.81, while Johnson & Johnson advanced 48 cents, to $61.85.

"There are clearly a lot of issues in tech and telecom, from an earnings, balance sheet and credibility standpoint," said Mark Foster, chief investment officer at Kirr, Marbach & Co., which oversees $450 million. "Better valuations and better earnings growth" are making blue-chip shares more attractive, he said.

Oil stocks emerged as winners during a downbeat session. Oil prices rose as Middle East tensions kept traders on their toes for the possibility of another flare-up over the weekend. Drilling contractor Nabors Industries Inc. (NBR) gained $1.03 to $47.17. Oilfield services company Halliburton Co. (HAL) added 24 cents to $16.60.

Telecom shares tumbled after credit rating agencies slashed WorldCom Inc.'s credit-worthiness to "junk" status, citing the company's deteriorating operating performance, huge credit load and expectations of yet more weakness.

WorldCom Group (WCOM), the firm's main data and Internet business, was the most-active Nasdaq stock and sank 43 cents, or 21 percent, to $1.58. MCI Group (MCIT), the firm's residential long-distance telephone unit, dropped 79 cents, or 25 percent, to $2.30.

Western Wireless Corp. (WWCA) tumbled $2.33, or 41 percent, to $3.35. The wireless telephone company reported disappointing quarterly results and said the number of subscribers fell from the previous quarter.

"The telecom slaughter continues -- there doesn't seem to be any light at the end of the tunnel for that area," said Eric Thorne, fund manager for Bryn Mawr Trust Co., which oversees $2 billion. "People are awaiting signs of a recovery and we're not seeing it."

The Philadelphia Stock Exchange Semiconductor index sank 4.47 percent in the technology-led selloff. Intel Corp. (INTC), the world's largest maker of computer chips, surrendered $1.23 to $27.01. Chip equipment maker Applied Materials Inc. (AMAT) slumped $1.56 to $23.70.

Neose Technologies Inc. (NTEC) plunged $9.26, or 44 percent, to $11.56 after the drug technology developer said partner Wyeth had decided to discontinue development of a heart treatment compound, clouding Neose's revenue outlook.

Resistance -- the point where sellers are likely to emerge -- is at 1,625 for the Nasdaq, 10,100 for the Dow and 1,080 for the S&P, according to research firm Schaeffersresearch.com. The levels are key elements of technical analysis, which studies prices, volume and charts.

Support -- where buyers are expected to swoop in -- is at 1,560 for Nasdaq, 9,800 for the Dow and 1,040 for the S&P.

Somber corporate news offset a surprise fall in producer prices in April.

Prices paid to U.S. producers tumbled in April as a sharp drop in food costs more than offset rising energy prices, the Labor Department said in a report that bucked Wall Street expectations of higher costs at the wholesale level.

The Producer Price Index, a closely watched wholesale inflation gauge, fell 0.2 percent last month. Stripping out volatile food and energy prices, the so-called core PPI rose 0.1 percent in April, showing wholesale prices well contained.

"Clearly, there is not much reason or incentive for the Fed to even consider raising short-term interest rates at this time," said Hugh Johnson, chief investment officer at First Albany Corp.

Losers trounced winners by a ratio of about 2 to 1 on the New York Stock Exchange and 11 to 6 on Nasdaq. More than 1.18 billion shares changed hands on the Big Board and more than 1.83 billion on Nasdaq in moderate trading.

The Russell 2000 index, which tracks smaller company stocks, fell 8.66, or 1.7 percent, to 492.73. For the week, the Russell dropped 3.8 percent.

Overseas markets also fell. Japan's Nikkei stock average finished Friday down 0.9 percent, France's CAC-40 fell 1.3 percent, Britain's FTSE 100 declined 0.5 percent, and Germany's DAX index lost 1.9 percent.

Reuters and the Associated Press contributed to this report.