The Nasdaq Composite index fell 178.61 points or 7.23 per cent to close at 2,291.91. It was the seventh-largest ever decline for the index and its lowest close since March 1999. Many tech and Internet stocks breached 52-week lows amid a rash of downgrades from Wall Street analysts.

Cisco lost $4.94 to $33.31, Sun Microsystems shed $2.44 to $25.44 and Oracle shed $2.69 to $26.38.

Investors piled into bonds after the latest economic data showed US manufacturing fell to its lowest level in a decade, further confirming that the US economic growth rate was slowing. This raised hopes that the US Federal Reserve would cut interest rates soon, but the data spooked the equity markets as they signalled the possibility of more deterioration in the corporate bottom line.