US stocks swooned yesterday after earnings warnings from Nortel Networks Corp and Palm Inc reawakened fears the slowing economy will hurt stocks and slashed gains from a three-day rally.

The Nasdaq Composite Index dropped 118.28 points, or 6.00 per cent, to 1,853.98 as Nortel and Palm pulled high-techs lower with their profit warnings. The technology-heavy index is now about 63 per cent off its peak of 5,048.62 hit on March 10th, 2000.

The Dow Jones industrial average fell 166.79 points, or 1.68 per cent, to 9,780.75 biting into the nearly 6 per cent gain enjoyed during a three-session winning streak. Media giant Walt Disney Co warned of layoffs and dragged on the blue-chip gauge, helping keep 27 of the 30 Dow components under water.