The Dow average tumbled to its lowest level since 1998 on Friday as grim outlooks from technology giants like Sun Microsystems (SUNW) and a criminal probe into drug giant Johnson & Johnson (JNJ) hit Wall Street hard.

The Dow Jones industrial average sank 390.23 points to 8,019.26, its lowest level since October 1998, according to the latest available data. Johnson & Johnson accounted for about a fifth of the Dow's decline. 

The broader Standard & Poor's 500 Index lost 37.07 points at 844.49, after hitting its lowest close since October 1997 on Thursday. The tech-laced Nasdaq Composite Index fell 43.67 points at 1,313.28.

For the week, the Dow dropped 7.7 points, the S&P 500 lost 8 percent and the Nasdaq gave up 4 percent. The Dow has lost over 20 percent this year.

"Money managers are getting calls saying, 'Just liquidate my holdings. Raise cash,"' said Will Muggia, manager of the Touchstone Emerging Growth Fund. "Part of the fear is that there's no place to hide. People are selling everything that hasn't gone down yet."

The Dow has fallen every session but one in the past two weeks, erasing 14 percent of its value, as Wall Street pros question the outlook for company profits amid widening corporate scandals. Other major market gauges also are floundering at multiyear lows.

"It's just ugly. It's the recovery that won't come. It's always one or two quarters away," said Charles White, president of Avatar Associates, which oversees $2 billion. "People don't trust anything anymore. The market is modestly oversold, but you still have the possibility of it becoming dramatically oversold."

Investors who had hoped second-quarter earnings would bring brighter forecasts have been disappointed as a slew of companies have warned that the outlook for corporate profits remains dim. More than half of the companies in the Standard & Poor's 500 have now reported results.

"The outlook is still not good," said Muggia. "Earnings may have bottomed, but there's no palpable sign of an uptick yet. Investors are waiting for capital spending and information technology spending to increase and they haven't seen it."

As a result, investors have been yanking cash out of mutual funds, worried that stock declines will further slice into personal wealth and retirement savings.

Domestic equity funds have seen net redemptions for seven consecutive weeks, including a whopping $10.7 billion outflow in the last week, according to Banc of America Securities.

Johnson & Johnson (JNJ) was the talk of Wall Street after the drugmaker confirmed federal regulators are probing allegations of fraudulent record-keeping at a Puerto Rico plant that makes an anemia drug, one of the company's best-selling medicines.

The stock ranked as the biggest loser in the Dow average, sinking almost 16 percent, or $7.88, to $41.85.

Sun Microsystems (SUNW) was another sore spot. The computer maker reported its first quarterly profit in a year, but forecast another loss as it fights for deals in the midst of the technology downturn. Shares tumbled more than a quarter of their value, or $1.55, to $4.25 after having scraped out a fresh year low of $4.19 earlier.

Still, some see the sharp declines as based on widespread panic rather than underlying fundamental weakness.

"The crowd psychology has turned from wildly euphoric to the mirror image of that," said A.C. Moore, chief investment strategist at Dunvegan Associates. "I'm not sure it's really responsible to attribute (the drop in the last 10 days) to immediate external events such as company guidance. Just as 1999 and early 2000 were selling opportunities, this is a buying spot."

"Most of the earnings that are coming out in technology are basically hitting the numbers, coming in-line, but the guidance is being revised down," said Jack Francis, senior Nasdaq trader at UBS Warburg.

AOL Time Warner Inc. (AOL) fell almost 7 percent as Wall Street sought clarity after a management shake-up that included the resignation of No. 2 executive Robert Pittman three months after he was chosen to revive its struggling online unit.

Shares slid 87 cents to $11.58.

Microsoft Corp. (MSFT), the world's largest software maker, fell $1.55 to $49.56, weighing on the Dow and the Nasdaq. The company scaled back its profit and sales outlook for the current year, and said growth was more likely to come later in the fiscal year.

U.S. Treasuries firmed and gold prices rallied as investors fled to safe havens. The dollar sank to a new 2-1/2 year low versus the euro and slid toward a 17-month nadir against the yen as equity markets fell and the U.S. trade gap set a record in May for a second straight month

Still, some see the recent sharp declines as sure signs the market is scraping out a bottom.

"The public has lost faith in market, but I'm getting more bullish -- there have been seven weeks in row of equity mutual fund redemptions, which is a sign of capitulation selling," said Muggia.

The market shrugged off economic data before the open that showed U.S. inflation was almost nonexistent in June. Price softness could be seen in everything from clothing and new cars to housing, a Labor Department report showed.

The Consumer Price Index, the main U.S. inflation gauge, increased a mere 0.1 percent last month, below Wall Street forecasts. The report will give the Federal Reserve added leeway to keep interest rates at their current 40-year low.

Declining stocks trounced advancers by a ratio of roughly 3 to 1 on the New York Stock Exchange and 5 to 2 on the Nasdaq. More than 2.63 billion shares changed hands on the Big Board and more than 2.37 billion on Nasdaq.

Overseas, Japan's Nikkei stock average slid 2.8 percent. In Europe, Germany's DAX index fell 4.7 percent, Britain's FTSE 100 slipped 4.6 percent, and France's CAC-40 lost 5.4 percent. 

Reuters and the Associated Press contributed to this report.