(Updated from 9:33 a.m.)

Inflation data and bad earnings news are hitting stocks with a double whammy. The

Producer Price Index

, which measures the change in wholesale prices, spiked in January.

And some yucky earnings announcements after the close yesterday were forcing investor sentiment to come careening back to earth with a thud.

The

Dow Jones Industrial Average was dropping 67 to 10,823. The

Nasdaq Composite Index was losing 97 to 2456. And the

S&P 500 moved down 20 to 1307.

The headline PPI soared 1.1% in January, almost four times the expected 0.3%. The core PPI -- which excludes energy and food prices -- was up 0.7%, compared with the expected 0.1% rise. Economists weren't sure how to take the report.

Most of Wall Street had thought that inflation concerns were basically on the back burner, but the PPI might indicate otherwise. While many economists were calling it a simple aberration, others worried that it could make further cuts to interest rates a lot more difficult. The

Fed cut interest rates twice in January, by a half-point each, and the market is banking on more cuts in coming months. Lower rates are good for economic recovery.

January

industrial production data showed that output slowed less severely in January than it had in December, but more sharply than economists were expecting. Production fell 0.3% during the month, compared to forecasts that it would be unchanged, while capacity utilization dropped to 80.2% vs. expectations that it would come in at 80.4%. Industrial production slid 0.6% in December.

Also look for February's preliminary

consumer sentiment index

due out at 10 a.m. Industrial production is an important measure of economic growth. While economists are forecasting a tiny rebound in production for January, they expect it will continue to fall during most of first and second quarter. Consumer sentiment is an important to watch as it affects consumer spending. The Fed has said repeatedly that it is key to getting the economy back on its feet.

You might have thought it was the beginning of fourth-quarter earnings season all over again last night. Warnings cropped up throughout tech-land. Bad news came rushing out of PC-giants

Hewlett-Packard

(HWP)

and

Dell

(DELL) - Get Report

, networker

Nortel Networks

(NT)

, integrated-circuit maker

Analog Devices

(ADI) - Get Report

, fiber-optic leader

Corning

(GLW) - Get Report

and Internet software and services company

Novell

(NOVL)

. Pharmaceutical giant

Schering-Plough

(SGP)

also served up some bad news.

Nortel was tanking on news that it

slashed its forecasts for 2001 in half and announced plans to bring its total layoffs to 10,000.

Merrill Lynch

and

Credit Suisse First Boston

rushed in this morning to lower their ratings on Nortel. This sector got a

hefty boost yesterday after

Ciena

(CIEN) - Get Report

TheStreet Recommends

beat Wall Street estimates for its fiscal first-quarter earnings and, more importantly,

forecast strong growth. Nortel was off 34.1%.

Hewlett-Packard was off 10.2% after it announced lat night that it

met Wall Street's vastly lowered earnings expectations for its fiscal first quarter ended Jan. 31. But revenue came in below already skeptical estimates, and the company said

business wasn't going to get any better for the rest of the year.

Another PC darling, Dell, missed Wall Street's lowered fiscal fourth-quarter earnings estimates by a penny. Dell managed to

beat revenue forecasts, but it gave no guidance for future earnings or revenues. This inability to forecast the future confirms that companies are having problems figuring out how business will shake out in coming quarters. It was off 7.3%.

So expect a hard day for the PC makers. The sector turned in its best monthly performance in years during January after getting burned late last year as the slowing economy took its toll on consumer and corporate demand for PCs.

Analog Devices met earnings forecasts, but

projected that its second-quarter and full-year earnings will be well below analysts' expectations. And Novell

projected a tough year-over-year comparison for the second quarter.

Corning

(GLW) - Get Report

lowered its revenue estimates and said it will need to control costs in order to meet its first-quarter and full-year earnings estimates. Corning was off 15.5% in early trading.

Schering-Plough is set to sink after it

warned that future earnings are being hurt by a

Food and Drug Administration

probe into the company's manufacturing processes and quality control. Its stock hadn't yet opened for trading.

Sepracor

(SEPR)

, which licenses allergy medication Claritin to Schering, was falling 11.5% on Schering's news.

That's a lot of bad news to absorb.

The consensus on Wall Street is that lasting gains for tech stocks probably won't happen until there is a clear turnaround in the economy and earnings. That means that while there may be plenty of tradable rallies and selloffs, stocks are likely to go nowhere in coming months. Many companies and analysts expect business to pick up in the third quarter of this year. But with

visibility issues cropping up all across the tech universe, that forecast has lost muscle. Some are now saying real earnings growth won't begin again until the fourth quarter.

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Bonds/Economy

The benchmark 10-year

Treasury note was tanking this morning in reaction to the PPI data, down 9/32 to 98 12/32, yielding 5.211%.

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International

The Nortel news didn't just sideswipe the U.S. market, though. It crushed a would-be rally in Japan and wreaked havoc on Europe.

London's

FTSE 100

slid 83.30 to 6114.6, as telecommunications companies continued to get creamed in the wake of last week's failed attempt to float shares of telco

Orange

. Between the Nortel warning and recent troubles in

Lucent

(LU)

, telecommunications has faced much adversity lately. Frankfurt's

Xetra Dax

dropped 102.08 to 6489.59. The Parisian

CAC-40

fell 106.91 to 5597.62.

The euro was lately trading at $0.9171.

Over in Asia, markets were disappointed by the Nortel news, which came out after the trading day yesterday. Usually, Japan's

Nikkei

would have rallied, because the Nasdaq Composite rallied. Japanese trading tend to follow what occurs here. But Nortel's warning ruined that rally and the Nikkei fell 151.9 to 13,175.5. Hong Kong's

Hang Seng

slid 126.1 to 15,630.3.

The dollar was trading at 115.44 yen.

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