(Updated from 3:41 p.m. EST)

The

Dow Jones Industrial Average and

Nasdaq Composite Index finished sharply in the red, as inflationary economic data and concerns about technology profits chased investor enthusiasm. The Dow lost 205 to 10,526, while the Nasdaq lost 49 to 2269, its lowest close since March 3, 1999.

"The market is trying to find a bottom," said Matt Ruane, senior block trader at

Gerard Klauer Mattison

. "But until we get more favorable earnings reports, it will continue to slide." Both major averages are down for the year: The Dow is off approximately 1%, while the Nasdaq is behind about 6%.

Making market matters worse, January's

Consumer Price Index, released this morning, came in higher than economists had predicted, posing a risk of inflation. The CPI grew 0.6%, compared to estimates for 0.3% growth. Excluding volatile food and energy costs, the index showed a 0.3% advance, compared to economists' target of a 0.2% gain.

A stagnant economy combined with inflation produces an effect known as stagflation. If stagflation proves a reality, the combination of rising prices, zero economic growth and falling consumer sentiment would dash Wall Street's hopes of a rally in the near term.

Technology bellwether

Cisco

(SYMBOL)

has fallen 3.5%, hitting a fresh 52-week low. Other tech stocks hitting new 12-month lows this afternoon included:

Sun Microsystems

(SUNW) - Get Report

, off 11.8%,

Ariba

(ARBA)

, which was lately up 6.6%, and

Exodus Communications

(EXDS)

, which was also lately up 10.4%.

Intel

(INTC) - Get Report

is down 2.2% to $30.75, a day after the chipmaker said it's cutting costs to save several hundred million dollars over this year to make up for a sales slowdown. Other semiconductor manufacturers were up on the day, however.

Xilinx

(XLNX) - Get Report

climbed 2.1% to $43.25, while

Advanced Micro Devices

(AMD) - Get Report

gained 1.9% to $23.

Shares of

Coca-Cola

(KO) - Get Report

have sunk to their lowest levels of the day, soaking the

blue-chip index. This morning, the beverage giant announced a partnership with fellow Dow component

Procter & Gamble

(PG) - Get Report

to sell juices and snacks. Wary of the new arrangement, investment houses

Goldman Sachs

and

Sanford Bernstein

downgraded Coca-Cola, generating a selloff in the soda manufacturer's stock. At the close, Coke had fizzled 6.1% to $54.92, while Procter & Gamble had popped 1.4% to $76.80.

Behind Coca-Cola, retail stocks were the biggest drag on the Dow. Yesterday, home-improvement retailer

Home Depot

(HD) - Get Report

announced fourth-quarter earnings that met Wall Street's estimates, but warned that it expects first-quarter comparable sales to be flat to slightly lower from the year-ago period. In recent trading, Home Depot was down 7.1% to $40.95.

Wal-Mart

(WMT) - Get Report

, which yesterday announced a fourth-quarter profit that topped analysts' expectations by a penny, was lately down 6% to $50.21.

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Sector Watch

Drug stocks are one of the few groups higher on the day: The

American Stock Exchange Pharmaceutical Index

is up 1.4%. Shares of

Merck

(MRK) - Get Report

are ahead 1.1% to $78.72, while

Johnson & Johnson

(JNJ) - Get Report

is up 1% to $97.04.

Other defensive groups have also managed to make it to the plus column: The

American Stock Exchange Tobacco Index

lifted 0.5%, with

Philip Morris

(MO) - Get Report

up 0.8% to $40.30 on the day.

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Bonds/Economy

Treasuries were selling lower as the money market readjusted to some important economic data released this morning. But the overall movement of the notes and bonds should continue to respond to stock prices. Yields are almost the same as yesterday, though they have lately shown volatility at the market's short end.

The benchmark 10-year

Treasury note finished 8/32 to 98 29/32, raising its yield to 5.139%.

In economic news, the

Consumer Price Index

(

definition |

chart |

source

) rose 0.6% for the month, up from a 0.2% growth in December and 0.3% more than economists polled by

Reuters

had anticipated. It is the highest jump since last March, when prices also rose 0.6%, the biggest increase since October 1990. The fears of inflation may be tempered a little -- it was mainly a 17.4% increase in the price of natural gas that caused the sharper increase. Still, the core CPI, which excludes food and energy prices, also rose more than expected, by 0.3%; a 0.2% increase had been forecast.

In other news, both

import and export prices

(

definition |

chart |

source

) fell during December, by 0.7% and 0.8% respectively. The trade deficit, which fell by $32.99 billion, has now shrunk for the third consecutive month. Economists had expected the number at a negative $32.18 billion. However, for the year 2000, the deficit stood at a record $369.7 billion.

Real earnings

(

definition |

chart |

source

), which measure weekly wages after they have been adjusted for inflation, were unchanged for January after having declined by 0.3% in the previous month. The 12-month average is down by 0.5% after falling by 0.3% in December.

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) rose by 0.9% for the week ended Feb. 17, moving along at a healthy clip after registering 0.8% growth in the previous week. The yearly moving average also rose to 4.1% from 3.4%.

The

Redbook Retail Average

(

definition |

chart) for February is 2.4% ahead of the number recorded during this month last year. It is 0.5% below January's and 0.4% behind the targeted decline.

The overall message of sales activity is positive, with most retailers having beaten sales objectives. While some of the sales were of winter clearance items, Valentine's Day-related merchandise lured the majority of the shoppers.

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