The US's high-tech industries were hit by more bad news yesterday, with many Silicon Valley companies falling further in value, pulling down the Nasdaq composite index to its lowest since January 1999 before it bounced back in the afternoon.

Among the casualties was EMC Corp, the data storage company that employs some 1,750 people at Ovens, Co Cork. The company lost more than 18 per cent of its value after it was downgraded by Bank of America, which lowered its assessment to "market performer" from "strong buy" on a poor earnings report.

EMC was not alone in seeing its share value plunge. The San Jose-based software provider BEA Systems lost 18 per cent of its value yesterday as investors braced for fourth-quarter results after the markets closed. Investors are alarmed at reports of an inventory glut at major technology companies such as Sun Microsystems of Palo Alto, which lost 11.8 per cent of its value on Wednesday. Sun Microsystems employs 250 people in its software development centre in Dublin and recently announced that it would double that number.

The economic slowdown has hit sales of computers and software. Profits are being hurt as companies cut prices sharply in order to move the products from their warehouses. Another factor has been a sharp fall in orders for new chip-making equipment. The decline in January was the worst in 10 years, though analysts say chip-makers are positioned to react quickly to a rebound in demand.

The largest maker of chip production gear, Applied Materials of Santa Clara, California, has missed its revenue and earnings target for the first quarter because of delayed or cancelled orders, and is cutting salaries and costs. Applied Materials has a small number of people servicing the Intel site at Leixlip, Co Kildare.

The slowdown makes it inevitable that there will be more layoffs in the high-tech industry, which has made Silicon Valley the biggest source of technology innovation and venture capital in the world. Mr Wim Roelants, president and chief executive of Xilinx, which designs advanced semiconductor chips, told The Irish Times in his Silicon Valley office: "There are certainly going to be layoffs in the high-tech industry in the next couple of months."

He said the slowdown affected most sectors of the US economy and it would be a mistake to call it simply a "high-tech recession". He predicted that it would be at least two quarters, perhaps more, before the economy strengthened. The downturn will not affect Xilinx's planned investment of $41 billion (€45 billion) in its Dublin centre, creating 500 jobs over the next five years, he said.

Job cuts in computer and Internet companies, telecommunications and the car industry were responsible for an increase in the number of US workers filing new unemployment benefit claims. These rose by 4,000 to a level of 348,000 in the week ended February 17th, according to government figures released yesterday.

Unemployment rose to 4.2 in January and economists expect the figure to rise to an average 4.5 per cent in the second half of the year.

Dell Computers is firing 1,700 people, or 4 per cent of its workforce, in response to slower sales of personal computers and Alltel, a provider of wireless, local and long-distance telephone services, said it would cut 1,000 jobs to reduce expenses. Amid all the gloom, a key gauge of US economic activity rose 0.8 per cent in January, reversing three consecutive monthly declines and signalling unexpected resilience in the economy. The New York-based Conference Board said its Index of Leading Economic Indicators rose to 109.4 last month, evidence that the economy was steering clear of recession.

Signs of inflation in Wednesday's consumer price index figures for January - which showed a jump by 0.6 per cent because of soaring power and medical costs - helped push share prices down.

Rising inflation would tie the hands of Federal Reserve chairman Alan Greenspan in making a further aggressive cut in interest rates and increasing the money supply.