The tech-heavy

Nasdaq Composite Index had lately headed back under the flatline after a refreshing early-afternoon rally failed to stick.

The poor thing's been beaten to oblivion in the past couple weeks, wiping out all the gains it made in January. In fact, yesterday, the Comp saw a long list of its most well-known issues hit 52-week lows.

Meanwhile, the

Dow Jones Industrial Average was firmly stuck in negative territory.

The major indices got a major blow from news that the

Consumer Price Index

for January

rose higher than expected, which helped fuel fears that inflation is on the prowl and ready to pounce.

The CPI rose 0.6% last month. This key inflation measure was expected to rise only 0.3%; it saw a 0.2% increase in December. The index was driven higher by energy and tobacco prices. Excluding volatile food and energy prices, the CPI rose 0.3%, also higher than the anticipated 0.2%. It had risen only 0.1% in December.

When last week's

Producer Price Index came out

higher than expected, it was considered an aberration, a fluke. Many said next month it would come in showing recessionesque numbers again.

And while some could say neither number is accurate and that next month will show that the economy is still slowing, the release of two pieces of economic news showing inflationary numbers within the space of a week doesn't bode well.

The problem is, when inflation is rising in an economic slowdown, the

Fed can do almost nothing. It's that old '70s fun called stagflation. Fed Chair

Alan G. and his cronies can't cut rates in the face of inflation, so they have to sit back and let the recession run its course.

TheStreet.com's

Peter Eavis wrote more about the

phenomenon in an earlier story.

Meanwhile, many of the Nasdaq's components were trying to recover some of what they lost in yesterday's action when a who's who of tech issues hit their 52-week lows, including networking giant

Cisco

(CSCO) - Get Report

. It lately was down 0.3% to $26.06.

Matt Johnson, head of Nasdaq trading at

Lehman Brothers

, said that there was money coming back into the market today, when investors "figured out that the world wasn't coming to an end" today no matter what the CPI number was.

He said it's too early to tell if a rally is sustainable, but Johnson said he'd be comfortable with a close above 2290.

In other Nasdaq action, another player that hit a 52-week low in Tuesday's session was

Sun Microsystems

(SUNW) - Get Report

. The stock hit another low today, thanks to a

downgrade and an earnings view trim from

Merrill Lynch

. Sun lately was the most actively traded stock on the Nasdaq, off 11.2% to $19.75.

Fiber-optic parts makers

JDS Uniphase

(JDSU)

and

Ciena

(CIEN) - Get Report

were among the few on the Nasdaq's most actively traded list to be suffering. JDS Uniphase was off 6.7% to $31.94, while Ciena was 5.3% lower to $73.31.

Brocade Communications

(BRCD)

was up 5.7% to $47.25 on seemingly no news, except that last week its valentine to investors was that its business is good despite concerns about the economy. The company makes switches that tie together computer data storage networks. One of its biggest customers is

EMC

(EMC)

, which was lately the most actively traded stock on the Big Board; it was tumbling 10.6% to $44.04.

The Dow was getting pulled down by a couple of stocks in very diverse industries. Soft drink giant

Coca-Cola

(KO) - Get Report

was falling after getting socked with downgrades from

Goldman Sachs

and

Sanford Bernstein

. The company also announced that it was partnering with fellow blue-chip

Procter & Gamble

(PG) - Get Report

to form a stand-alone business to sell their juices, juiced-based drinks and snacks. The company is expected to have annual sales of up to $5 billion in two years. Coke was down 7.2% to $54.23, while Procter & Gamble was 1.6% higher to $76.95.

Also,

The Home Depot

(HD) - Get Report

which got a nice lift on news yesterday that it met estimates was getting slapped down today. The home improvement retailer announced that its co-founder and co-chairman, Arthur Blank, was retiring. The stock was down 5.2% to $41.81.

TST Recommends

Sector Watch

Semiconductors were the spotlight sector today, with the

Philadelphia Stock Exchange Semiconductor Index

jumping 3%. The chipmakers were being snapped up by bargain hunters -- just look at

Rambus

(RMBS) - Get Report

,

Applied Materials

(AMAT) - Get Report

and

KLA-Tencor

(KLAC) - Get Report

which were all having nice bounces. Rambus was up 4.9%, Applied Materials was 5% higher, and KLA was rising 5%.

Credit Suisse First Boston

initiated coverage on

Micron

(MU) - Get Report

with a hold rating. It was edging up 0.3%.

Johnson said that the sentiment on semis seemed to be they had "absolutely" bottomed, attaining valuation levels that were again attractive -- thus, today's rally.

Defensives were still heavily favored today, with the

American Stock Exchange Pharmaceutical Index

up 2%, the

American Stock Exchange Tobacco Index

0.9%% higher and the

Philadelphia Stock Exchange Gold and Silver Index

inching up 0.3%.

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Bonds/Economy

Treasuries are selling lower as the money market readjusts 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 lately was down 10/32 to 98 29/32, raising its yield to 5.141%.

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 because 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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