Stocks fell sharply in New York as a mostly encouraging stream of fourth-quarter profit reports was overshadowed by a weak IBM forecast citing the continuing economic crisis in Asia.

The Dow Jones industrial average fell 1 per cent, a partial recovery from a 135-point slide that briefly wiped out all of Tuesday's 119-point rally.

Broad-market indicators also surrendered a chunk of Tuesday's gains.

The heavy losses came despite some better-than-expected fourth-quarter profit reports from Dow components Caterpillar and Exxon, as well as Compaq Computer and Delta Air Lines.

Surprisingly, although IBM tumbled the equivalent of more than 30 Dow points after its gloomy announcement after the close of trading on Tuesday, the technology sector suffered only a marginal loss.

The technology-heavy Nasdaq composite index fell only a little bit more than a tenth of a percent, down 2.22 to 1587.92.