NEW YORK (CNNfn) - European technology stocks plunged Tuesday, dragged down by an unexpected warning from Finnish mobile-phone maker Nokia that severely undercut investor optimism about future company profits.
Nokia shares plunged about 21 percent after the news, accounting for about two-thirds of the 11.7 percent fall on the DJ Stoxx technology sector -- now back at levels last seen in April.
Meanwhile, the U.K. FTSE 100 share index closed down 56.5 points, or about 1 percent, to 5,804 as Nokia rival (VOD) slid to a 2-1/2 year low and banks suffered a second day of losses, dampening hopes of a speedy recovery in the FTSE's fortunes.
U.S. markets were equally woeful, with the Dow Jones industrial average down nearly 1 percent and the Nasdaq down 2.4 percent.
"The (NOK) news has come at the bottom of the curve, and the future is not as rosy as people thought," said Andy Hartwill, SG Securities' UK equity strategist.
Vodafone was down 6-1/2 pence or 3.7 percent at 168.3p, having fallen as low as 165p, its lowest since December 1998.
Nokia sinks tech stocks
Nokia, the world's largest maker of mobile phones, said weaker global market conditions would slash second-quarter earnings and sales.
It forecast April-June earnings per share of  0.15-0.17 compared with earlier estimates of 0.20, and halved its sales outlook for the quarter to growth of less than 10 percent year-to-year.
The fallout was ugly, and the ramifications spread quickly.
Peers (ERICY) and (PHG) tumbled 7.4 percent and 5.9 percent, while France's Alcatel gave up 3.9 percent and Britain's Marconi lost 2.9 percent.
In Paris, Franco-Italian chipmaker (STM), for whom Nokia is a major client, plummeted 9.07 percent while chip designer (ARM) was among the top losers on Britain's benchmark FTSE index, falling 7.4 percent.
Germany's Siemens dropped 4.5 percent and mobile phone casing maker Balda, also a major supplier to Nokia, dropped 10 percent.
"People are surprised because Nokia's guidance has always been relatively optimistic and aggressive relative to the sector, but this is basically an industry in technology transition, and that is always painful," said Sofia Gachem, communications technology analyst at UBS Warburg.
Intel fostered false hope
Traders said investors, though braced for another rough period of profit warnings as the second quarter nears a close, had been wrong-footed by chip maker Intel (INTC: down $1.10 to $29.23, Research, Estimates), which stood by guidance last week and raised hopes the worst might be over.
"Intel last week lulled people into a false sense of security. The next question is what people are going to cut their numbers to. There will be up to 30 percent coming off (earnings-per-share) numbers," said the head of European equity sales trading at a leading London investment bank, referring to analysts' Nokia forecasts.
Robert Kerr, European equity strategist with Bank of America, said earnings expectations remained dangerously high. Aggreggate 2001 price/earnings forecasts for the DJ Stoxx tech sector were at 41.4 times -- still far above reality, he added.
"The environment is still fertile for this kind of warning," he said. 
-- from staff and wire reports
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