Though debate remained about whether yesterday's strong rebound was the start of something, or just a fake-out, the technology sector was building on those gains in early trading today.

The

Nasdaq Composite Index

was up 112.53, or 3.2%, at 3612.11.

TheStreet.com Internet Sector

index was up 32.05, or 3.8%, at 866.10. An as-expected

Producer Price Index

was having little influence, but was not scaring buyers from entering the market.

And now the rest of the story. Shares of

Lycos

(LCOS)

have been on fire lately over rumors of a possible takeover. And now we learn that

Terra Networks

(TRRA)

, an Internet service provider for Spanish-speaking Internet users, and Lycos have been negotiating a merger. Shares of Terra, which has a market cap of around $15.6 billion, were up 3 1/4, or 5.7%, at 60. Lycos, with a market cap around $6 billion, was up 5 1/2, or 10%, at 59 1/2.

"Talks are currently going with Lycos with no definitive agreement worth announcing so far and no guarantee for the time being that one can be reached,'' Terra said in a filing to Spain's

National Securities Market Commission

, according to a

Reuters

report. Rumors last week had Lycos in merger talks with

Vodafone AirTouch

. The stock has soared since those rumors were in the market.

Internet Capital Group

(ICGE)

was up 1 1/16, or 3.3%, at 32 7/8 after reporting earnings last night. The business-to-business incubator had, by most accounts, a solid first quarter, with earnings of $1.30 per share, compared with 14 cents last year.

However, not all was rosy with ICG.

Robertson Stephens

downgraded the stock to buy from strong buy. Analyst Eric Upin noted the downgrade of the stock for a number of reasons. He wrote that cash burn from investments were "significantly higher than we expected." In addition, the company's operating cash burn rate is approximately $100 million per year. He noted heavy use of cash vs. stock in recent deals, a less receptive IPO market and "potentially greater funding demands by existing portfolio companies." Robertson Stephens has done underwriting for ICG.

In addition, the company continues to face lock-up pressures. According to

Lehman Brothers

, Internet Capital Group had 45 million shares coming off lock-ups this week and next week, and another 95 million shares are coming off lock-ups in June. Lehman also adjusted its 18-month price target on Internet Capital to $80 a share from $200 "in light of the pull-back in B2B valuations."

"We want to point out that our sum of the parts valuation of ICG is highly sensitive to changes in B2B public company trading multiples. As a result, we will reconsider our target price as merited by future changes in these multiples," Lehman analysts wrote.

But

Credit Suisse First Boston

reiterated a strong buy on Internet Capital, noting that the company had a "solid" cash position of $1 billion, which represented "a huge opportunity in a market where valuations have declined by 50% to 70%." In reiterating the strong buy, analyst David Dusenbury wrote that he believed investors, "will recognize significant upside from current valuation levels."