Stocks sunk today as a spate of bad corporate news combined with the news that U.S. and British aircraft attacked two military command and control centers outside Baghdad.

The facilities targeted were outside the no-fly zone, which was set up by U.S. and British forces at the end of the Gulf War in 1991, but is not recognized by Iraq. Today's attack was the first since February 1999, when U.S. warplanes attacked the outskirts of Baghdad. Pentagon officials said the attack was launched because of an increasingly sophisticated threat against allied planes patrolling the no-fly zone.

The market was already having a bad day because of a host of bad earnings news and some indication that inflation concerns must still be a consideration. Oil stocks got a bit of a lift in recent trading because of the unrest in the Middle East and stocks, in general, finished well off their lows for the day.

At last look, the

Philadelphia Stock Exchange Oil Service Index

was up 0.04%, the

American Stock Exchange Oil & Gas Index

was ahead 0.3%, and the

Chicago Board Options Exchange Oil Index

was up 0.4%.

Both the

Dow Jones Industrial Average and the

Nasdaq Composite Index, however, posted solid losses. The indexes came off their lows as government officials gave a press briefing on the attack.

Grim news from the tech sector last night has been clobbering the Nasdaq all day. Networking equipment maker

Nortel Networks

(NT)

warned of sharp first-quarter earnings and revenue shortfall, saying that the U.S. economic slowdown is "faster and more severe" than it had expected. The revelation pounded the once high-flying optical stock, off 32.8% to $20, and pummeled the entire sector. The

American Stock Exchange Networking Index

was down 11.4%.

This sector got a false start yesterday after

Ciena

(CIEN) - Get Report

said it beat Wall Street estimates for its fiscal first-quarter earnings and, more importantly, forecast strong growth for the year. That stock was down 7.2%.

PC-makers dug deeper into the pits this afternoon, following last night's earnings warnings from

Hewlett-Packard

(HWP)

and

Dell

(DELL) - Get Report

.

Dell ended down 6% and H-P was behind 8.9%.

IBM

(IBM) - Get Report

decreased 1.7%,

Intel

(INTC) - Get Report

fell 3.7% and

Microsoft

(MSFT) - Get Report

lost 2.8%.

Today's tech woes are coupled with new inflation data. The latest report on the

Producer Price Index, which measures the change in wholesale prices, showed a spike in January. The main number came in at 1.1%, a number so high that many originally thought it was a typo when it was released before the start of trading today. It was close to four times higher than the 0.3% growth that was expected.

The PPI numbers tend to fluctuate from month-to-month, but such a huge PPI increase has many people wondering exactly what's happening in this slowing economy. It adds more uncertainty to a market that is already having trouble determining what the rest of 2001 will look like.

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Sector Watch

With heavy volume on both the Dow and Nasdaq, investors dumped technology shares across the board.

The

Philadelphia Stock Exchange Computer Box Maker Index

was off 5%, the

Philadelphia Stock Exchange Semiconductor Index

dropped 7%, and

TheStreet.com Internet Sector

fell 5.1%.

On the heels of last night's warning from

Schering-Plough

(SGP)

, drug stocks are trading down slightly. The

American Stock Exchange Pharmaceutical Index

slipped 0.8%. Schering-Plough, off 14.6%, was the leading casualty on the index.

Merck

(MRK) - Get Report

was off 1%.

Pfizer

(PFE) - Get Report

ended up 2.3%.

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Bonds/economy

Treasury prices were higher as varied economic news and weakness in equities gave bonds a "safe haven" quality at present. The market closed early and didn't have much time to absorb news of U.S. air strikes in Iraq.

But short-term notes led a turnaround as some bellwether technology companies disclosed poor corporate performance. Such an inverse development is normal when stock worries make investors move their money to liquid risk-free government securities. Wholesale price data released this morning hints of inflationary possibilities but industrial output is down.

The benchmark 10-year

Treasury note was up to 15/32 to 99 4/32, lowering its yield to 5.111%.

The

Producer Price Index

(

definition |

chart |

source

), which measures the changing costs involved in the manufacturing process, was up by 1.1% in January after a gain of 0.2% the previous month. This is way above expectations and the biggest increase in more than a decade. Economists in a

Reuters

poll had predicted a 0.3% rise. The sharp upturn does not change much when excluding the more volatile food and energy prices. The index still registers 0.7% growth, which is 0.6% more than expected. These numbers suggest that despite

Federal Reserve officials repeatedly stating that inflation remains in control, there may still be cause for concern. In such a scenario, the central bank will be even more wary of lowering interest rates in the near future.

Housing starts

(

definition |

chart |

source

) show that the real estate market is retaining considerable strength. The number of new privately owned units being built rose by 5.3% to 1.651 million in January, while 1.697 million building permits were issued in the same period, up by 12.6%. This rate hasn't been seen since Jan. 1990. Although private home building has been robust for the last three months, both numbers are higher than anticipated.

Industrial production

(

definition |

chart |

source

) fell by 0.3% last month, which was more than expected. The capacity utilization rate, which shows how much of the factory equipment and personnel is being put to use, was 80.2% for January and not much below the earlier reading of 80.7%. These anemic manufacturing numbers are well accounted for by the bond market since it is understood that this sector of the economy is having problems.

The

Consumer Sentiment Index

(

definition |

chart ), which has a 1966 base value of 100, is 87.8 in the first half of February, its lowest level since Nov. 1993 and down sharply from the revised number of 94.7 last month.

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