There are a lot of unrealised hopes and expectations

John Davidson asset manager

That leaves it just 20 points above its starting point on Monday, before the short-lived mid-week rally.

Friday's demise was felt most by the telecoms sector which suffered a loss of confidence after US rating agencies slashed their assessment of the WorldCom's debt to "junk" status.

Technology shares have been extremely sensitive to corporate data of late, leaving them both vulnerable and volatile.

Desperate for escape

An increase in profits from network equipment maker Cisco pushed the Nasdaq index into its biggest one day gains in a year on Wednesday, as it raced to an 8% rise.

But analysts quickly decided that the reaction to good news from just one company was over-heated.

And a closer look at Cisco's results showed that the rise in profits had largely been due to cost-cutting measures rather than an increase in demand.

Investors are desperate for signs that the economy recovery is beginning to feed through into corporate America and revive spending.

But rumoured job cuts from computer maker IBM - which are thought to be as many as 9,000 - also suggest the sector is still entrenched in the saving rather than the spending cycle.

Spreading gloom

"In reality the economic situation hasn't changed with the forecast of one big company," said John Davidson, chief executive of PartnerRe Asset Management.

"There are a lot of unrealised hopes and expectations."

WorldCom is the second largest long-distance telephone firm in the US and is suffering under a mountain of debt and facing a price war.

Its shares plunged more than 20% to an all-time low of $1.57 during Friday trading.

The gloom spread to blue chip shares, where the Dow Jones closed 98 points lower at 9,940.