(Updated from 10:52 a.m. EST)

Monday's bulls beat an early retreat this morning, bucking into the red on a new round of nasty earnings news and some data indicating that the U.S. economic slowdown is more severe than previously thought. But near midday stocks were making a comeback, with both of the major indices well off their lows.

After pulling off their first real rally in a month yesterday, both the tech-bogged

Nasdaq and the

blue-chip

Dow sank lower in early trading before bouncing off their session lows. The Dow was just barely positive at last look, while the Nasdaq, though still in the red, wasn't bleeding quite as profusely as previously. Volume was moderate on the Nasdaq and the

New York Stock Exchange, and cash was trickling into defensives like gold and tobacco stocks.

PC maker

Gateway

(GTW)

was falling 3.5% to $17.19 after

Merrill Lynch

analyst Steven Fortuna said he expects the company to drop its forecast for earnings per share this year to "well below" Wall Street consensus estimates of the $1.28. "If the outlook goes down 30% to 40% percent, the stock could easily follow it,'' Fortuna wrote. The analyst also lowered his rating to neutral from accumulate.

But Fortuna didn't limit his comments to Gateway. The analyst also said he doesn't expect a rebound in consumer demand in the second half of this year. As so-called visibility issues crop up, some companies and analysts have begun to stretch their forecasts for an economic rebound into next year.

Nike

(NKE) - Get Report

was also a major casualty of the morning after the athletic-shoe maker

lowered its fiscal third-quarter earnings projections. The culprits -- sluggish footwear sales and software problems that made it hard for the company to track inventory. Nike was down 17.9% to $40.50. Nike's admission of its software problems was also hurting shares in business-to-business softwaremaker and Nike supplier

i2 Technologies

(ITWO)

, which was falling 12.7% to $31.06.

Wireless-communications equipment maker

Sawtek

(SAWS)

was trotting southbound earlier after warning that it would miss consensus analyst estimates for its earnings and revenue for its fiscal second quarter; but lately it had turned up, climbing 5.2% $17. 94.

The latest series of estimate revisions signal an early and unwelcome start to "warning" season for the first quarter. Earnings warning season is that uncertain time before the reporting season begins when companies that do not expect to make their earnings targets "warn" investors.

A little disappointing, this morning's

durable goods orders report showed that

demand for big-ticket goods fell sharply in January. The headline number fell 6% last month compared to a revised 1.2% rise in December, mostly due to volatile aircraft orders. Economists polled by

Reuters

had forecasted a 3% drop for the month. But durable goods excluding transportation still fell 0.3%, putting them down 5.6% year-over-year. Nondefense capital goods ex-aircraft is flat year-over-year.

The

consumer confidence index came out at 10 a.m., and it didn't look good. Consumer confidence came in at 106.8, its lowest level since June 1996 and significantly below consensus forecasts of 109.6. Consumer confidence levels have been tumbling since hitting a July high of 143 to January's 114.4 level.

Investors were watching this data closely after rumors emerged Friday that the

Federal Reserve plans to cut interest rates this week, well ahead of its next official meeting on March 20. Skeptical investors want to know if that theory holds any water, because the two rate cuts in January have done seemingly little to give the market the sustained boost it seems to need. Today's data parade will help shape the debate. But

TheStreet.com's

Justin Lahart wrote a recent analysis that says investors

shouldn't hold their breath for a cut before the next Fed conclave.

Still, investors may be wary ahead of Fed Chairman

Alan Greenspan's speech before the House of Representatives tomorrow. Greenspan first delivered this semiannual testimony -- formerly called the

Humphrey Hawkins -- before the Senate on Feb. 15, and was expected to repeat it unchanged tomorrow before the House. But the Fed has since confirmed that he has rejiggered his testimony.

But it's hard to know which way Mr. G may have altered his testimony. He could now be leaning more heavily towards aggressive interest-rate cuts in order to stem the downward spiraling in consumer confidence. As consumer confidence levels deteriorate, so does already weak consumer spending. And retail spending is a major force of the U.S. economy. But Greenspan might also soften his stance on interest-rate cuts. Recent economic data has indicated that economic growth and inflation in both wholesale and consumer prices picked up during January.

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Sector Watch

Pretty much everything tech was getting bashed today: PC makers, chip, Internet and networking stocks. The

Philadelphia Stock Exchange Computer Box Maker Index

was tumbling 0.3%, the

Philadelphia Stock Exchange Semiconductor Index

was falling 1.1%, the

TheStreet.com Internet Sector Index

was down 2.6%, and the

American Stock Exchange Networking Index

was shedding 1.4%.

Tobacco stocks were pretty much the only sector investors really liked today. The

American Stock Exchange Tobacco Index

was up 1.8%, and Philip Morris was nearing its 52-week high of $49. The stock was up 3.2% to $48.

Financials were up, with bank stocks rising and brokerages also higher, though just barely.

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Bonds/Economy

Treasury prices were surging this morning following the release of the durable goods and consumer sentiment reports.

The benchmark 10-year

Treasury note was lately up 23/32 to 100 12/32, yielding 4.952%.

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