(Updated from 11:05 a.m.)

A market jittery over slowing telecom and technology spending got socked in the gut this morning with revenue warnings and bearish analyst comments on the telecom and semiconductor sectors.

Beleaguered telecom

WorldCom

(WCOM)

warned of slower-than-expected revenues in the fourth quarter and announced plans to spin off its consumer business, MCI.

TheStreet.com

wrote a separate story about the

WorldCom warning.

Then

Goldman Sachs

lowered its price target on French computer and phone-networks maker

Alcatel

(ALA)

. The downgrade on Alcatel may have caught some by surprise after that company reported strong earnings Tuesday morning and issued and optimistic outlook for the future.

In the semiconductors' corner, semis-equipment maker

Altera

(ALTR) - Get Report

issued a revenue warning last night, and

Morgan Stanley Dean Witter

cut its ratings on four major semiconductor companies due to "low capital spending growth in the chip industry."

MSDW lowered its ratings on

KLA-Tencor

(KLAC) - Get Report

,

Applied Materials

(AMAT) - Get Report

,

Lam Research

(LRCX) - Get Report

and

Advanced Energy Industries

(AEIS) - Get Report

to outperform from strong buy.

The casualties from this morning's telecom fallout included troubled long-distance carrier

AT&T

(T) - Get Report

,

France Telecom

(FTE)

and

British Telecom

(BTY)

.

Worldcom, meanwhile, was the

Nasdaq Composite Index's most actively traded stock, and was lately falling 19%. Altera was down 17.7%, KLA-Tencor was off 2.8% and Applied Materials was 4.2% lower. The

Philadelphia Stock Exchange Semiconductor Index

was falling 2.7%.

Finally, the optical and networking names were back in a hole after thundering ahead yesterday.

Nortel

(NT)

was falling despite reiterating expectations that it would meet previously set revenue and earnings per share guidance. Nortel was off 2.8% and

JDS Uniphase

(JDSU)

was losing 0.5%.

Over on the

New York Stock Exchange, brokerages were under fire after Goldman Sachs reduced its fourth-quarter earnings forecasts by about 9% for brokerages

Lehman Brothers

(LEH)

, Morgan Stanley Dean Witter

(MWD)

and

Merrill Lynch

(MER)

. Goldman cited softness in the IPO market and "less transparent businesses like private equity."

Solomon Smith Barney

followed Goldman's lead, but also included Goldman

(GS) - Get Report

in the fourth-quarter cuts. Solly reduced Morgan Stanley's fourth-quarter EPS view to $1.42 from $1.55 and Lehman's to $1.31 from $1.38 a share. Goldman Sachs was knocked down to $1.35 from $1.55 a share.

Lehman was falling 4.6%, MSDW was off 3.1% and Merrill was down 3.1%. Goldman was lately 3.9% lower.

Finally, this morning's October

National Purchasing Manager's Index

, known as the PMI, showed that manufacturing activity contracted for the third month in a row. The PMI came in at 48.3 compared to expectations of 49.8 and the previous month's 49.9. The PMI signals expansion when it is above 50 and a contraction when it comes in lower.

This is an important number to watch, considering the growing concern about slowing business spending on plant and equipment.

TheStreet.com

recently took a look at how slowing capital expenditures is

affecting stocks.

What

Federal Reserve Chairman

Alan Greenspan and Wall Streeters really want to see from economic data right now is strong productivity growth coupled with manageable inflation. And business spending is partly what allows for increased productivity.

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Sector Watch

Internet stocks were flying this morning, perhaps because there wasn't any bad news on them and investors were looking for somewhere to stick the cash they were drawing out of other tech areas. Or perhaps it was

Amazon

(AMZN) - Get Report

, which this morning reiterated confidence in its business strategy. Amazon was up 4.4%,

Yahoo!

(YHOO)

was soaring 7%,

eBay

(EBAY) - Get Report

was rising 5%,

American Online

(AOL)

was lifting 2.1% and

CMGI

(CMGI)

was jumping 17%.

TheStreet.com Internet Sector

index was up 3.9%.

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Bonds/Economy

Bonds were higher, with traders continuing to see further signs of a slowing economy -- which would underpin the bond market's strong performance. Weakness in the stock market also is helping bonds.

The benchmark 10-year

Treasury note was up 1/32 to 99 30/32, yielding 5.757%.

The October

Purchasing Managers' Index

(

definition |

chart |

source

) fell to 48.3 from 49.9 in September, signaling a contraction in the manufacturing sector.

And

construction spending

(

definition |

chart |

source

) for September rose 2.4%, after a 1.8 % gain in August.

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