The market made a brief attempt this morning to pull itself out of its watery grave, where it ended yesterday's session -- but that attempt quickly faded. Blame the

Consumer Price Index. Released this morning before the open, the CPI fanned fears that inflation has indeed become a concern again, and raised the specter of stagflation.

The CPI showed that the prices consumers paid for goods and services in January rose 0.6% -- twice as fast as economists had been expecting. The core number, which excludes volatile food and energy prices, also rose a tick faster than expected, at 0.3%. Economists generally believed inflation was no longer a major problem. But a report on the latest

Producer Price Index last Friday showed a surprising spike in price inflation at the producer level. The headline number showed a 1.1% jump, four times consensus forecasts.

The PPI is volatile, and almost all of Wall Street's talking heads had called the recent spike a blip caused by higher energy prices in a cold winter. But this morning's CPI made that argument a lot harder to make. If higher energy prices are lasting and inflation continues to soar, the thinking goes, that could

cripple the Fed's interest-rate cutting plans even as the economic slowdown continues to creep along.

And even worse, it could lead to stagflation. Stagflation is like a haunted house of mirrors, or a merry-go-round off which you cannot step. It's what happens when companies try to counter falling profits in a slowing economy by boosting prices. Unfortunately, consumers aren't about to pay higher prices for things when confidence and job security are falling, so they put off more purchases. But that means profits get worse, companies lay off more people and raise prices further. And so on.

That's not a pretty picture. And the outlook for this market was already pretty foggy and gray. Investors have been having a hard time getting out from under recent warnings by some of Wall Street's giants --

Cisco

(CSCO) - Get Report

and

Nortel

(NT)

. And even as the fourth-quarter earnings season winds down, negative forecasts keep surging out of tech companies. Last night, the culprits were

Agilent Technologies

(A) - Get Report

and

VA Linux

(LNUX)

.

Sun Microsystems

(SUNW) - Get Report

was a pretty unpopular stock today. But it was one of the biggest volume trades on that tech index, the

Nasdaq Comp. The stocks was bumping off 7.9% after

Merrill Lynch

analyst Tom Kraemer cut his rating on the stock to neutral from accumulate while scaling back earnings estimates. The stock was falling 8.2%. One concern cited by Kraemer was inventory levels, something that has been hitting stocks all across the tech universe in recent days.

Kraemer said that Sun's channel inventories were at a three-year high and that the situation could get even worse, due in part to equipment returns from failed dot-coms. Adding insult to injury, those companies lucky enough to still be around have already blown their bucks on new servers and aren't likely to go shopping at Sun.

Lo and behold, Cisco was the second-most actively traded stock on the Nasdaq, lately up 0.7%.

The

Dow, meanwhile, was getting slaughtered by

Coke

(KO) - Get Report

after it announced plans to get together with

Procter & Gamble

(PG) - Get Report

to

form a stand-alone company. Annual sales are expected to reach up to $5 billion in two years. Coke, slaughtered by analysts this morning, was falling 5.95% to $54.99.

J.P. Morgan Chase

downgraded Coke, and

Goldman Sachs

removed it from its U.S. "recommended for purchase" list. Goldman also lowered its earnings targets for the company.

Blue-chip PC maker

IBM

(IBM) - Get Report

was also doing its share of the damage to the Dow, slicing 13 points off the index.

It's hard to know how much lower stocks can go, however. So many bellwethers hit 52-week lows yesterday that the market looked like a junkyard pileup. Networker Cisco Systems, Internet consulters

Exodus Communications

(EXDS)

and

i2 Technologies

(ITWO)

and software cowboy

Adobe Systems

(ADBE) - Get Report

, for example, were mixed this morning after hitting 52-week lows yesterday.

The market may want a rally, but most folks don't think it will see anything lasting until there's some real improvement in both corporate earnings and the economy -- or at least until the fog lifts and

visibility improves. A bunch of Wall Street's high-tech corporate hot-shots have recently said that their crystal balls are getting awfully murky and that their companies no longer have a clear sense of how future business performance will shake out.

So watch for any errant earnings warnings. As this earnings season winds to a close, companies and investors are beginning to look ahead to first-quarter and future earnings. A recent report from earnings tracker

First Call/Thomson Financial's

Joseph Kalinowski suggested that the unofficial earnings warning season may get off to an early start for the first quarter. As the economy has slowed, consumer spending and corporate investment have taken a plunge, inventories have ballooned and corporate profits have been squeezed. Plenty of companies missed already lowered targets for the fourth quarter, and most analysts expect earnings to get worse before they get better. But -- as the stock market is showing -- investors are having a hard time figuring out just how much worse.

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Sector Watch

Yesterday's bounce in retail was nowhere to be found today. The

S&P Retail Index

was down 2.9% higher after rising Tuesday on strong earnings from

Wal-Mart

(WMT) - Get Report

and

Home Depot

(HD) - Get Report

.

Financials were still in the dumps today, with the

American Stock Exchange Broker/Dealer Index

1.7% lower, the

S&P Insurance Index

off 1.8% and the

Philadelphia Stock Exchange/KBW Bank Index

down 1.3%.

The sector got smacked yesterday on harsh words from two sources.

CIBC World Markets

said in a note from analyst Ken Worthington that "continued weakness in the equity markets and advisory environments" continue to cause concern among financial firms. And

Keefe Bruyette & Woods

issued a number of ratings changes, saying in a research note that "market volatility and economic uncertainty appear to be taking their toll on the retail segment of the brokerage business.''

Tobacco stocks were rising, and

Philip Morris

(MO) - Get Report

was at a new 52-week high, up 1.3%.

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Bonds/Economy

Treasury prices were flat this morning following the higher-than-expected CPI. This morning, the benchmark 10-year

Treasury note was down 5/32 to 99, yielding 5.127%.

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