The stock markets dived following the news.

The tech-heavy Nasdaq Composite Index closed down 7.23% at 2,291.86, a fall of 178.66 points.

It was the lowest close for Nasdaq since March 1999, and it was its seventh-largest decline ever in percentage terms.

Several brokerage houses downgraded IT-companies, adding to the index' decline.

The Dow Jones Industrial Average closed 140.70 points, or 1.30% lower at 10,646.15, having finished 2000 with its worst annual performance since 1981.

The broader Standard & Poor's 500 Index fell closed down 37.01 points, or 2.80%, to 1,283.27. This index finished 2000 with its worst performance since 1977.

Factories' importance

Manufacturing accounts for about a fifth of US economic activity and jobs, so the fall brought further proof that growth in the US is slowing.

The Purchasing Managers index fell four points from November to 43.7, according to the latest monthly survey by the National Association of Purchasing Management (NAPM).

Any figure below 50 indicates a contraction.

The news confirmed other gloomy figures which show a sharp slowdown in US economic activity, leading to fears of a "hard landing" which would push the US into recession.

The falling stock market indexes and the gloomy NAPM survey will increase pressure on the US central bank, the Federal Reserve, to cut interest rates when it meets at the end of the month

Factories hit

US factories were hard hit by a dramatic slowdown in economic growth during the second half of 2000.