NEW YORK (CNN/Money) - Signs of a deepening slump in the telecommunications business roiled U.S. stocks Monday after Ericsson and WorldCom slashed their financial forecasts.

The losses were the latest setback for a market that saw its first weekly gain in more than a month Friday.

The Nasdaq composite index tumbled 38.14 points, or 2 percent, to 1,758.69, widening its year-to-date loss to 9.9 percent. The Dow Jones industrial average lost 120.68, or 1.2 percent, to 10,136.43, narrowing its 2002 gain to 1.2 percent. The Standard & Poor's 500 index fell 17.34 to 1,107.83.

Nasdaq's biggest loser, WorldCom, joined Ericsson in cutting sales targets, delaying hopes for the long-awaited rebound in telecommunications spending.

"A lot of these companies are sick," said Jordan Kimmel, fund manager at Magnet Management. "People are still enamored with the market leaders of two and three years ago."

Mobile phone maker Ericsson (ERICY: down $0.80 to $2.74, Research, Estimates) posted a bigger-than-expected loss. Looking ahead, the Swedish company pushed back profit forecasts and said it will cut 20,000 jobs over the next two years.

Citingslack demand from business customers, WorldCom (WCOM: down $1.97 to $4.01, Research, Estimates), a long-distance phone service provider, lowered its 2002 earnings and revenue guidance. Three brokerages took the unusual move of telling investors to sell shares of WorldCom, which tumbled as much as 35 percent Monday.

More stocks fell than rose. On the New York Stock Exchange, declining stocks topped advancing ones 10-to-6 as 1.1 billion shares traded. Nasdaq losers beat winners 2-to-1 as 1.6 billion shares changed hands. More than 254 million of those shares belonged to WorldCom, which became the third-most actively traded Nasdaq stock during a single session.

In other markets, the dollar fell against the yen and held steady versus the euro. Treasury securities edged higher. Oil prices slipped.

Slumping demand for telecommunications equipment has battered an industry that borrowed heavily during the late 1990s. Big debts have come back to haunt telecoms such as Global Crossing, which filed for bankruptcy protection earlier this year.

Christoph Bianchet, analyst at Credit Suisse Asset Management, predicts that a rebound in communications spending may be two to three quarters away.

"We're still reluctant to buy into these stocks, even if they fall considerably," Bianchet said. "They might have turned the corner in the broadest sense, but the balance sheets are very stretched."

WorldCom's disappointment came as something of a surprise even for a company used to bad news. At least six brokerages downgraded WorldCom, whose shares are down 71.5 percent this year. Ericsson has fared little better; its shares are off 48 percent in 2002.

Lucent Technologies (LU: up $0.20 to $4.49, Research, Estimates) bucked the losing trend. The telecom equipment maker's eighth straight quarterly loss was not as wide as forecasts.

Losses in SBC Communications (SBC: down $1.06 to $31.66, Research, Estimates), the regional phone company, and AT&T, (T: down $0.75 to $13.75, Research, Estimates) a WorldCom rival, kept the Dow under pressure.

Despite the losses, Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum, said these stocks still may not be cheap.

"For that to happen, you need the stocks to drop 50 percent this year," Hyman told CNNfn's Market Call. "The picture in the telecom sector is not improving."

Not every company disappointed. 3M (MMM: up $0.12 to $125.01, Research, Estimates) recorded first-quarter profit that topped forecasts. Looking forward, the maker of Scotch Tape and Post-it Notes said full-year profit may beat forecasts.

3M is among the 163 S&P 500 companies reporting March quarterly results this week. Overall profits are expected to have fallen 11 percent in the first quarter before rising 8.3 percent in the current period, according to First Call.

Robin Griffiths, technical analyst at HSBC Securities, said the major indexes could give back about half the gains made since Sept. 21, when stocks fell to three-year lows in the first trading week after the terrorist attacks.

"People are risk averse when they see the war in the Middle East," Griffiths told CNNfn's Before Hours.

Federal Reserve Chairman Alan Greenspan returns to Capitol Hill Tuesday to testify before the Senate Banking Committee. By saying the pace of economic recovery remains cloudy, Greenspan suggested he's in no hurry to raise interest rates when he spoke to lawmakers last week.