(Updated from 4:12 p.m.)

Judging from the news releases and analyst notes the past 24 hours, the earnings recovery that investors have been banking on may take a little longer than expected.

In the wake of a slew of negative reports -- among them, lowered earnings guidance from Unix systems provider

Sun Microsystems

(SUNW) - Get Report

and a downbeat research note on telecom-equipment names including

JDS Uniphase


-- stocks traded sharply lower, with technology issues losing the most.


Nasdaq Composite Index finished down for the third day in a row, ending off 91.8 points, or 4.2%, to 2084.5. The

Dow Jones Industrial Average dropped 166.50 points, or 1.5%, to 10,872.64, closing below the 11,000 benchmark level for the first time since May 15. The broader-market

S&P 500 Index fell 19.85 points, or 1.6%, to 1248.08.

"The company news caused consternation among people who thought the second quarter was a trough," said Tony Cecin, manager of Nasdaq trading at

U.S. Piper Bancorp Jaffray

. "All of a sudden, it's a 2002 time frame. If more negative reports come out, we could retrace as much as 50% of our gains since April."

After the closing bell yesterday, Sun Microsystems lowered its earnings guidance, raising fears about the upcoming reporting season. In its highly anticipated midquarter update, Sun announced that it would fall far short of its fiscal fourth-quarter earnings and revenue targets. In a separate warning,



scaled back its forecast for the second quarter.

Earlier on Tuesday,

Goldman Sachs

said that it expected both Sun and storage outfit



to have difficulty meeting forecasts for the coming quarter. Sun closed off 13% to $16.25, after falling 8.8% yesterday. EMC -- which announced 1,000 job cuts on Tuesday -- shed 8.9% to $30.95 after dropping 8.4% Tuesday.

The Sun confession kicked off the second-quarter

preannouncement season, when companies let investors know if they expect to miss performance targets. Wall Street most likely is worried that the recent news is a sign of more warnings to come.

In a research note this morning,

Morgan Stanley

analyst David Jackson said that the recovery in telecommunications-equipment companies might not arrive until as late as the third quarter of 2002 -- a far cry from the fourth-quarter 2001 earnings turnaround some investors have been expecting for technology companies

He downgraded four companies to neutral from outperform:




JDS Uniphase








. Each of the stocks fell more than 8% today.

In April and May, Wall Street bulls began to bet that the earnings slowdown had begun to bottom. The Nasdaq, as of today's close, is still up 27.2% since hitting a low of 1638.8 on April 4. And the Dow is now 15.8% higher since it hit a two-year low of 9389.48 on March 22. For the year, the industrials are ahead 0.8%, while the Comp is behind 15.6%.

As investors retreated from technology sectors, some of their money was transferred to safer groups: Shares of


(PFE) - Get Report

lifted 0.3% to $43.20 and


(WMT) - Get Report

gained 0.5% to $51.47. But nearly every sector, from the semis to the transports, finished lower on the day.

European bourses closed behind, due to weakness in tech and telecom stocks. French telecom company



lost 8.8% to $24.99, after its much-talked about merger with



fell through overnight. Early gains in Alcatel fell apart after it issued an earnings warning. Lucent lost 2.2% to $8.14.

"On a short-term basis, the market is oversold," said Todd Clark, head of listed trading at

W.R. Hambrecht

. "It is time to look for a place to bounce, but there is no clue what the next positive catalyst will be."

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Europe's major indices finished lower. London's

FTSE 100

fell 71.7 points to 5792.2. Across the channel, the Paris


slid 98 to 5444.3, while Frankfurt's

Xetra Dax

lost 79.1 to 6041.2.

Asian markets tanked overnight, with 200-point losses in both Hong Kong and Tokyo. Tech and property stocks weighed on Hong Kong's

Hang Seng

, while tech and banking shares cut into Tokyo's

Nikkei 225

. The

Nikkei 225

lost 280.5 to 13,493.4. Hong Kong's

Hang Seng

sank 209.48 points to 13,420.13.

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