Friday February 16, 3:12 pm Eastern Time

U.S. stocks sink on air strike, profit woes, inflation fears

(UPDATE: Updates to late afternoon)

By Denise Duclaux

NEW YORK, Feb 16 (Reuters) - Stocks were mired in negative territory in late afternoon trading on Friday as confirmation of a U.S. attack on Iraq swept through a market already reeling over dour profit outlooks from high-tech bellwethers and a spike in the inflation rate in January.

U.S. and British war planes struck Iraqi air defense facilities south of Baghdad on Friday, hitting targets outside the no-fly zone, the Pentagon said. The Defense Department said aircraft from the two countries struck Iraqi radar systems at about 12:15 p.m. (1730 GMT) in retaliation for increased Iraqi anti-aircraft activity.

``The markets are fairly nervous here, and they are probably going to over-react to everything,'' said Ron Muhlenkamp, manager of Muhlenkamp Fund, which manages $320 million. ``It remains a volatile market, a nervous market. The big question of course is to we have a hard landing or a soft landing and that will remain a question for another couple of months.''

The technology-packed Nasdaq Composite Index (^IXIC - news) fell 120.87 points, or 4.73 percent, to 2,432.04, after sinking more than 6 percent earlier. The blue-chip Dow Jones industrial average (^DJI - news) dropped 105.95 points, or 0.97 percent, to 10,785.07. The broader Standard & Poor's 500 Index (^SPX - news) skidded 24.83 points, or 1.87 percent, to 1,301.78.

Some of the technology sector's biggest names -- fiber-optics supplier Nortel Networks Corp.(NYSE:NT - news) (Toronto:NT.TO - news), computer maker Dell Computer Corp. (NasdaqNM:DELL - news), and computer and printer company Hewlett-Packard Co (NYSE:HWP - news) -- cast a pall over the market with dour forecasts for near-term growth.

To make matters worse, the U.S. Producer Price Index (PPI) notched its biggest one-month gain in more than a decade in January. While the surprisingly strong numbers were largely viewed as an aberration, the jump in inflation raised questions about how deeply the Federal Reserve may cut interest rates after lowering rates twice in January.

Further clouding the picture, however, was a key gauge of consumer confidence, which slumped, suggesting the Fed may need to continue cutting interest rates.

Canada's Nortel, the world's leading supplier of fiber-optic telecoms equipment, slashed its forecast for growth in revenues and earnings, citing the U.S. economic downturn. Nortel slumped $9.85 to $19.90 after dipping as low as $19.50, a level not seen since September 1999. The selling bled over to other high-speed communications-related companies.

U.S. computer networking giant Cisco Systems (NasdaqNM:CSCO - news) slumped $2-5/16 to $28-1/2 after hitting an intra-day low of $27-31/64, its lowest since May 1999.

JDS Uniphase Corp., (Toronto:JDU.TO - news) (NasdaqNM:JDSU - news), the world's No. 1 supplier of fiber-optics components, was the Nasdaq's most active stock, down $8-1/4 at $36-7/8. The company warned this week that its earnings would miss Wall Street forecasts.

Fiber optics maker Corning Inc. (NYSE:GLW - news), which said it would accelerate spending controls following the Nortel warning, fell $9.21 to $32.80 after dropping to $32.20, its lowest since early December 1999.

Dell, the world's No. 2 maker of personal computers, fell $1-5/8 to $23-3/8 after posting its first-ever large-scale layoffs. It also cut its earnings forecast for the current quarter, amid an industry-wide slowdown.

Hewlett-Packard's outlook was similarly bleak, reporting a drop in income and saying it saw no near-term growth in its U.S. personal computer business. H-P fell $3.60 to $32.75, pulling down the blue-chip Dow average.

The high-tech profit warnings tossed cold water on technology investors, a day after an optimistic forecast and strong profits from telecom equipment maker Ciena Corp. (NasdaqNM:CIEN - news) sparked a big rally on the Nasdaq market.

There was bad news from the drug sector, as well. U.S. drug firm Schering-Plough Corp. (NYSE:SGP - news) fell $6.92 to $41.40 after it warned of weaker earnings.

The government reported the Producer Price Index jumped 1.1 percent in January, which was well above expectations for a 0.3 percent rise. Excluding volatile food and energy prices, the core PPI gained 0.7 percent, also easily skimming by Wall Street's forecast of a 0.1 percent gain.

U.S. stocks sink on air strike, profit woes, inflation fears

-- Ain't Gonna Happen (Not Here Not@ever.com), February 16, 2001