(Updated from 8:20 a.m.)

It ain't over 'til it's over. Or the fat lady sings. Or something.

After two days of smashing losses, the

Nasdaq sank to its lowest close in almost two years yesterday. But if investors are hoping Wednesday marked the end of the fall, they shouldn't count on it. With all of the sour news stinking up Wall Street, the market is going to need a strong positive catalyst to carry it back into an upward tack.

In early action this morning, the

Dow Jones Industrial Average

was down 3 to 10,523, the

Nasdaq Composite

was off 14 to 2254 and the

S&P 500

was down 2 to 1253.

Storage top dog

Brocade Communications

(BRCD)

, which makes switches and software to connect computer data networks, could land another blow to the storage sector this morning. The company warned that revenue growth in the second quarter would be "very modest" -- perhaps flat -- and lowered its earnings target for 2001 by 2 cents. Brocade was in bad shape in preopen trading this morning. Another mover to the downside was

Sun Microsystems

(SUNW) - Get Report

, which got bashed by

Merrill Lynch

yesterday and holds its mid-quarter conference call with analysts today after the close.

But the pain of the past few days in tech might at least ease a

little

bit. Well below fair value in earlier trading, tech futures were lately indicating a flat open. And the broader market was looking at a flat to firmer start on the day. Financial stocks, retailers and cyclical stocks got trashed along with tech yesterday, taking the

Dow to its lowest close this year. And investors may feel that was enough.

"The stocks of the day are going to be the storage stocks," said Brian Finnerty, head of trading at

C.E. Unterberg Towbin

. Finnerty said Brocade's warning should hit the sector pretty hard, despite the fact that it guided just a tiny bit lower. "So this is a very skittish market," he said.

"I think the broader market will bounce back a little, because it got sort of overdone," Finnerty said.

"Over the next six months, the downside has another 10% to 15% to go. That's the worst-case scenario," Finnerty said. "But the upside has room for 50% to 100%. That's pretty good risk reward. Now, having said that, you obviously have to take a little bit longer time-horizon."

In any case, there was certainly one special worth buying this morning: broadband network specialist

Efficient Networks

(EFNT)

, which was up near 88% after Germany's

Siemens

announced it had agreed to buy the company for $1.5 billion in cash.

Worry Warts

One of the market's problems is that investors have begun to doubt earlier predictions that the economy and earnings are destined recover in the second half of this year. Following some major earnings warnings from telecom-equipment makers

Cisco

(CSCO) - Get Report

and

Nortel

(NT)

, among others, in the past few weeks, the pros are now looking farther out.

With so much uncertainty over where the economy and the business cycle are headed, investors will keep a wary eye on the

leading economic indicators

index for January, to be released at 10 a.m. EST. A composite index of 10 economic indicators, this index is designed to predict economic activity six to nine months in the future -- so it's considered a pretty good forecaster of the ups and downs of the business cycle.

Economists are forecasting that the index will show a 0.3% rise, compared with a 0.6% drop in December. The index's indicators include: the average manufacturing-worker workweek, initial jobless claims, vendor performance, manufacturers' new orders for nondefense capital goods, building permits, the level of the

S&P 500, the inflation-adjusted measure of money supply, the interest-rate spread between the 10-year Treasury note and the

fed funds rate and the expectations portion of the University of Michigan

Consumer Sentiment Index.

Initial jobless claims for the week ended Feb. 17 came in slightly below forecast this morning before the open, showing that the economy may be a bit stronger than some people had thought. Jobless claims for the week totaled 348,000, compared to

Reuters

consensus forecasts of 355,000. The previous week's numbers were also revised downward to 344,000 from 352,000.

Inflation data out in the past week also has investors spooked. Yesterday's

Consumer Price Index report showed that prices consumers paid for goods and services in January rose twice as fast as economists had been expecting, reinforcing fears sparked by last Friday's

Producer Price Index report that inflation is not as controlled as everyone had thought. Economists and the

Fed are still more worried about depressed consumer sentiment levels and a potential recession than inflation. But if higher energy prices are lasting and inflation continues to soar, that could lead to stagflation, the thinking goes, and

cripple the Fed's interest-rate cutting plans even as the economic slowdown continues to creep along. Stagflation is rising prices with slow or no economic growth -- in other words, a nightmare.

Meanwhile, some are predicting that there is more bad news looming on the near horizon.

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 is down, corporate investment has 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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Bonds/Economy

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

Treasury note was down 7/32 to 98 25/32, yielding 5.158%.

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International

Europe's major indices were lower at midsession, with much of the drag coming from mobile-phone makers

Nokia

(NOK) - Get Report

and

Ericsson

(ERICY)

.

France's

CAC-40

was down 16.01, or 0.29%, to 5458.36 and Germany's

Xetra Dax

was falling 62.23, or 0.98%, to 6295.76. Things were looking a little better in the U.K., where the

FTSE 100

was off just 10.40, or 0.17%, to 5962.00.

The euro was lately trading at $0.9046.

Asian markets fared no better. Japan's

Nikkei 225

closed off 26.72, or 0.2%, to 13,073.36 overnight. Hong Kong's

Hang Seng

got slammed, losing 252.87, or 1.65%, to 15,098.64.

The dollar was trading at 116.13 yen.

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