Stocks fell sharply Monday, racking up their biggest drop in nearly two months, as a weak dollar and a sluggish gauge of leading indicators prompted investors to lock in profits after weeks of gains.

The Dow Jones industrial average (search) finished down 185.58 points, or 2.14 percent, at 8,493.39. The technology-laced Nasdaq Composite Index (search) sank 45.76 points, or 2.97 percent, at 1,492.77. The broader Standard & Poor's 500 Index (search) fell 23.53 points, or 2.49 percent, at 920.77.

"A weak dollar is fine for our exporters, but it's awful for Wall Street because if you are a foreigner, you are not going to want to invest in dollar-denominated investments," said Arthur Hogan, chief market analyst at Jefferies & Co.

The dollar hovered near 4-year lows against the euro and 2-year lows against the yen after U.S. Treasury Secretary John Snow called the dollar's recent weakness "a modest realignment" at a weekend meeting of the Group of Seven industrial nations.

Snow's comments were interpreted as the United States pulling back from its strong dollar policy, which some traders said contributed to the market's fall.

"The concern is that foreign investors could be selling U.S.-based holdings and going overseas with their investment capital," said Jim Russell, director of core equity strategy for Fifth-Third Bank in Cincinnati.

"We also think the market is down because it has had such a strong run-up post-war," he added. "The market is ready for a pause. ... We would expect a pullback of modest proportions over May and June."

Others said the decline had more to do with the rally that began in mid-March rather than concerns about the greenback.

"Today is just profit-taking and a small pullback from recent highs," said David Memmott, head of listed block trading at Morgan Stanley.

It was the biggest one-day percentage decline for the three gauges since March 24.

In economic news, the Conference Board (search) 's index of leading economic indicators (search) rose 0.1 percent in April, as expected. The gauge suggested that economic growth will remain sluggish for the next few months at least.

"The soft economic data is what's on everyone's mind," said Ozan Akcin, chief market strategist at Puglisi & Co. "Investors are focusing on earnings fundamentals, and the economic data has yet to show a turnaround."

Lowe's Cos. (LOW), the second-largest home improvement retailer, fell after it reported sales fell short of its forecast. Lowe's shares fell 9.03 percent, or $4.00, to $40.30.

A drop in Lowe's No. 1 rival, Home Depot Inc., (HD) helped push the blue-chip Dow lower. Home Depot fell 3.84 percent, or $1.12, to $28.07.

Merck & Co. (MRK), another Dow member, tumbled 4.77 percent after an unfavorable ruling by the U.S. Supreme Court.

The U.S. Supreme Court ruled that the state of Maine can put into effect a pioneering law designed to lower prescription drug prices for the poor and uninsured. Analysts said the ruling will likely embolden other U.S. states in challenging the powerful pharmaceuticals industry.

Merck shares lost $2.84 to $56.65. The American Stock Exchange Pharmaceutical Index dropped 4.36 percent.

Among gainers, Genentech Inc. (DNA) soared 44.72 percent after it said its experimental colon cancer drug, Avastin, extends life longer than it had expected, potentially marking a dramatic breakthrough in cancer treatment. Genentech shares shot up $16.95 to $54.85 and were the Big Board's biggest percentage gainer.

Campbell Soup (CPB) rose $1.50 to $22.95 after the company raised its 2003 outlook, although it sees fourth-quarter profits to fall below Wall Street's estimates.

Losers outpaced winners by a ratio of 23 to 10 on the New York Stock Exchange and by 11 to 5 on the Nasdaq. Trading was active, with about 1.36 billion shares changing hands on the Big Board and 1.66 billion shares traded on Nasdaq.

The Russell 2000 index, a barometer of smaller company stocks, fell 6.37, or 1.5 percent, to 408.32.

Overseas, Japan's Nikkei stock average finished 1 percent lower Monday. In Europe, France's CAC-40 dropped 4.3 percent, Britain's FTSE 100 fell 2.7 percent and Germany's DAX index slid 4.6 percent.

Reuters and the Associated Press contributed to this report.