The US markets took a nose-dive on Thursday following a gloomy profits warning from the tech giant Cisco Systems.

The euphoria of Wednesday's cut in US interest rates was short-lived as traders lost their nerve, sending the tech index Nasdaq down 3%.

It looks like the markets are a bit tired

Harry Michas Manmarketmonitor.com

Shares in Cisco itself dropped almost 5% as traders digested the company's warning that US companies were continuing to cut their spending on IT.

Cisco is a closely watched stock in the US and its commentary on market conditions in the tech sector is taken as read.

The Nasdaq Composite index closed down 42.28 points at 1,376.71, while the blue-chip Dow Jones industrial average fell more than 2% to 8,586.24.

The broader Standard and Poor's 500 was off 2.3%, closing at 902.65.

It was the biggest percentage drop for all three market gauges since 16 October.

"It looks like the markets are a bit tired," said Harry Michas, a stock index futures trader at Manmarketmonitor.com.

The US markets were also disappointed that the European Central Bank (ECB) and Bank of England did not follow the US Federal Reserve by cutting interest rates.

London's lament

Toward the end of the trading day in the UK, shares hovered around the market's opening level as the FTSE 100 dipped in and out of the red.

The FTSE 100 index eventually finished 22.4 points lower at 4,081.3, well back from a high of 4,147.1.

US movers

Cisco: down 5% JP Morgan Chase: down 7% Yahoo: down 10% TMP Worldwide: down 20% Gap: up 5%

The UK market relinquished earlier gains after the Bank of England and the ECB left interest rates unchanged.

"It's not a disastrous day but the market was expecting a cut," said Martin Dobson, head dealer at NatWest Stockbrokers.

"There's a little bit of disappointment from some people but it shows that the UK economy is a bit more stable than the US economy," he added.

European shares lost more ground, with the French Cac-40 closing down more than 3% and the German Dax index finishing more than 4% lower.

Party pooper

Although Cisco managed to post a profit for its latest set of results, the company's chief financial officer, Larry Carter, predicted flat or falling sales during the November to January quarter.

"Cisco is weighing on the market because of their poor sales outlook for early next year," said Burton Schlichter, senior market analyst with Lind-Waldock, a division of brokerage Refco.

"That's the focus today."

Another tech name Yahoo fell by more than 10% after the Japanese Internet investor Softbank Corp. cut its stake in the internet portal.

The clothes retailer Gap provided some rare cheer after its shares climbed 5%.

The shares hit $13.11 after the company said October sales at stores open at least a year increased by 11%, halting a 29-month slide.

In the UK, the telephone operator BT managed to close up almost 6% after announcing strong second-quarter results.

Other British stocks, however, languished, particularly after the US markets beat a downward path on opening.