DOW TUMBLES 130.31 POINTS; WIDESPREAD SELL-OFF ERASES GAINS OF WEEK.

Byline: David Barboza The New York Times

The stock market plunged Friday in a broad sell-off, just two days after the Dow Jones industrial average breached the 8,000-point level.

There was heavy selling throughout the day, as technology shares and blue-chip stocks closed out a historic week by reversing much of their gains.

The Dow plummeted 130.31 points, or 1.62 percent, to close at 7,890.46. For the week, the Dow lost 31.36 points. But for the year, the blue-chip average is up 22.3 percent.

Analysts said technology shares were upset by Microsoft, which reported earnings that were slightly better than expected after the market closed Thursday. The software giant also said revenues could slow in the new fiscal year that began July 1.

Microsoft, which often beats estimates by wide margins, had gained 20 points in the previous four sessions. Friday, its shares fell 8 15/16, to 140-1/2.

A University of Michigan report, showing that consumer confidence hit record levels in the first half of July, created some inflation worries in the bond market, helping push interest rates higher.

``There's a tendency of the market to react even to the little bits of news that come out,'' said Ned Riley Jr., chief investment officer at Bank Boston. ``The consumer attitudes were a little steamy and there was some fear that might pick up into inflation.''

But Riley said there was also a rising concern among some investors that inflation might dissipate into deflation, which means that pricing power could erode to the point where corporate profits will suffer.

Friday, the selling pressure came shortly after the opening bell. Some of the losses - and part of the volatility that helped the Dow plunge 145 points early in the day - were attributed to heavy program trading and ``double witching,'' the expiration of some options on stocks and stock indexes.

But Laszlo Birinyi, president of Birinyi Associates, a research firm that tracks program trading, said program trades only accelerated a trend that was already in the market.

In the broader market, the Standard & Poor's 500-stock index fell 16.31, to 915.30, and the Russell 2000 fell 2.22, to 405.89.

The technology-heavy Nasdaq 100 - which tracks the largest companies in the Nasdaq composite - fell even more steeply, down 2.2 percent, as several high-flying technology stocks retreated after two weeks of soaring prices.

``The principal news may well have been the Microsoft news, where they hit their estimate but didn't exceed it,'' said Frederick Taylor, chief investment officer at the U.S. Trust Co. ``That's a news item that did take a little energy out of the tech stocks.''

IBM was the only Dow stock to gain, climbing 4-7/8 points, to 104-1/2, after its shares were upgraded by Merrill Lynch ahead of next week's earnings report. Trading in IBM, at 11.6 million shares, was nearly three times the average volume.

Within the Dow, 27 stocks lost ground, with Procter & Gamble leading the way, down 4 5/16, to 148-3/4. DuPont lost 3-1/4, to 62-1/4.

Drug, financial and technology shares - among the year's best performers - saw heavy losses Friday, as did energy shares. On the Big Board, losers beat winners by a margin of more than than 2 to 1.

The recent run-up has many on Wall Street talking about a ``classic blowoff,'' a period when prices rise too sharply, too quickly in what many consider a danger sign.

``Prices have outrun their sensible structure,'' said Justin Mamis, a technical analyst who has followed the market since the 1950s. ``They've become emotional, speculative almost.''

Friday's sell-off, rather than being the onset of a severe downturn, is in the eyes of some analysts a time to rest and contemplate the next move. ``After pushing over 8,000 we're just taking a little rest,'' said Taylor at U.S. Trust. ``This kind of correction today is just a normal midsummer interlude.''

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Photo

Photo: A New York Stock Exchange trader rubs his eye during Friday's flurry.

Associated Press