European markets buckled yesterday as a profit warning from telecom equipment giant Ericsson pounded the tech sector amid news of large layoffs at computer networking giant Cisco which sank the once-mighty Nasdaq index.
Ericsson nosedived 20 per cent after shocking markets with the announcement it expected a pretax loss of 4-5 billion Swedish crowns in the first quarter instead of a result close to break even.
That carved 15 points off the European technology sector and sent it plummeting 9 per cent, through the psychologically key 500-point level to 485 points, its lowest since October 1999.
The index is now 60 per cent from its high of March 2000.
As Nasdaq fell 5 per cent, smashing through 2,000 points, analysts warned European techs were only just beginning to see the kind of earnings pain that has been coming through from their US peers for several months.
Shares in Nokia, the world's largest mobile phone maker, dropped 9.5 per cent, while French telecom equipment maker Alcatel shed 7.84 per cent and Marconi fell 7.5 per cent.
Markets were already weaker after Cisco Systems said it would cut 11 per cent of its workforce as evidence mounted the US economic slowdown is spreading and could run longer than anticipated.
The gloomy outlook - the third from a major US. tech bellwether in less than a week - heightened concerns that there was no quick fix for the sputtering US economy.
Markets have been banking on aggressive US interest rate cuts to keep the world's biggest economy out of a recession but last week's stronger-than-expected US jobless data dashed hopes for a 75 basis point cut at a Fed meeting next week.
Investors will be looking to this week's US retail sales figures for more guidance, but strategists and economists have said the markets face a no-win situation.
If the data is worse than expected, it increases the chances of a bigger rate cut but also fuels recession fears, while a better-than-expected figure dims rate cut hopes.
Back in Europe, a double-digit decline in insurer Prudential
added to the gloomy mix after it announced a $26.5 billion offer for American General Corp in what would be the largest ever takeover in the sector.
But investors took fright at the price tag, sending the stock down 13.9 percent and slashing $4.3 billion off the notional cost of the deal.
Financials were the second biggest losers behind tech stocks, down 3.12 percent overall, while telecoms fell 2.9 percent with France Telecom and Deutsche Telekom losing more than four percent apiece.
Vodafone, which fell 2.2 percent, is likely to be under pressure again today. Even as technology shares crumbled, Schroder Salomon Smith Barney advised clients to jump back into tech and sell shares in pricey pharmaceutical and telecoms. The brokerage also said European equities looked attractive.
