Nortel Networks

(NT)

and

Amazon.com

(AMZN) - Get Report

were playing tug-of-war with the major indices, and lately it looked like Nortel had the upper hand.

The

Nasdaq Composite Index was off its lows of the session, but was still firmly in the red. The

Dow Jones Industrial Average was in the green but was starting to slide toward break-even.

Nortel, which warned of slowing optical sales for the year after the closing bell yesterday, was lately down 25.8%. It was the most actively traded stock on the

New York Stock Exchange and was the showing the largest point and percentage drops on that exchange. The company revised its outlook for optical equipment sales for the year to $10 billion from a previous $12 billion.

TheStreet.com

took a close look at Nortel's news in a

separate story.

Analysts jumped on the stock, perhaps a little too late.

Lehman Brothers

cut its ratings on Nortel and fellow optical-networking leader

JDS Uniphase

(JDSU)

, which reports earnings tomorrow. Lehman also cut its 12-month price target on Nortel, as did

UBS Warburg

.

Merrill Lynch

reiterated the company as a near-term buy. JDS Uniphase, the most active stock on the Nasdaq, lately was down 17.1%, or $16.25, to $78.81.

SDL

(SDLI)

, which is being acquired by JDS Uniphase, fell a whopping $57, or 18%, to $259.

The Nortel news rocked any related stocks including fiber-optics maker

Corning

(GLW) - Get Report

and fiber-optic suppliers

Ciena

(CIEN) - Get Report

and

Corvis

(CORV) - Get Report

to

Meanwhile, Amazon.com jumped 21.8%, or $6.25, to $35.81 after it reported a narrower-than-expected loss of 25 cents a share vs. expectations of 33 cents and expressed optimism about the crucial fourth quarter. The retailer's stock is currently some 74% off its 52-week high of $113.

Amazon anticipates sales of $950 million to $1.05 billion and expects that pro forma losses will represent 5% to 8% of sales. By March 31, or the end of its first quarter, the company plans to have $700 million in cash and marketable securities.

TheStreet.com

took a close look at what the

earnings mean for Amazon in a separate story.

Amazon's good announcement lifted

TheStreet.com Internet Sector

index 2.2%. The sector was also getting some help from newly added component

CNet Networks

(CNET) - Get Report

, which

beat estimates and was up about 13%, or $3.31, to $29.

On the Dows, strength in defensive stocks was countering weakness in techs and telecoms. Airline

TheStreet Recommends

Boeing

(BA) - Get Report

-- lately up 3.6% -- and financial

J.P. Morgan

(JPM) - Get Report

-- up 2.9% -- were adding some 37 points to the upside.

But PC-maker

Hewlett Packard

(HWP)

and telecom

AT&T

(T) - Get Report

were pulling their weight to the downside, with a combined 43 points of negative pressure. AT&T was lately down 11%.

H-P was getting slammed after computer-maker

Compaq

(CPQ)

said that fourth-quarter earnings would miss analyst estimates of $0.41 by 4 cents last night. The company blamed the

beleaguered euro for its troubles. H-P was off 4.5%; Compaq, though, was up by 5.4%.

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Sector Watch

The

Philadelphia Stock Exchange Semiconductor Index

dropped almost 5%, reeling from Nortel and Compaq's news

. Linear Technology

(LLTC)

, down 12.7%, and

Lattice Semiconductor

(LSCC) - Get Report

, 8.9% lower, were among the hardest hit.

Biotech has also fallen back into favor as a tech haven and was playing that role today. The

Nasdaq Biotechnology Index

was 1.6% higher to 1300.4.

Otherwise, investors were furiously throwing their money at defensive stocks such as drugs. The

American Stock Exchange Pharmaceutical Index

was 1.6% higher, led by

Merck

(MRK) - Get Report

which lately was up 1.7% and at a new 52-week high of $86.94 after reporting strong earnings earlier this week.

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Bonds/Economy

Bonds were down for the second day in a row.

The benchmark 10-year

Treasury note was down 6/32 at 100 22/32, to yield 5.656%.

The 30-year

Treasury bondwas at 107 8/32, 14/32 lower, to yield 5.737%.

The

Mortgage Applications Survey

(

definition |

chart |

source

) for the week ended Oct. 20, rose to 587.2 from 498.6 in the previous week. Refinancings continue to rise, while the purchase index slipped to 298.7 from 311.1.

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