Hi-tech stocks in the US and Europe took another pounding yesterday as investors reacted to what they saw as disappointing sales figures from telecommunications network company Nortel.

The Canadian group reported that third-quarter sales of its optical sales system rose by 90% on the same quarter last year - a performance that failed to meet market expectations of around 125%.

The resulting sell-off saw Nortel shares down 28% to $45.25 at one point, and trading was later halted on the Toronto exchange.

The fall-out from the Nortel figures quickly hit prices on the Nasdaq index.

"Nortel's news indicating a revenue slowdown hit the market hard," said one US analyst. "Buyers have just beaten a path to the sidelines, expecting that this may be a test of the lows on the Nasdaq."

In Europe, the hi-tech dominated Neuer Markt in Frankfurt was sharply lower, with Adva Optical Networking leading the decline as it fell more than 10% on the Nortel figures.

Hi-tech related stocks on the main Frankfurt market did not escape either. At one stage the semiconductor maker, Infineon, was down almost 7% while software group SAP fell by some 3.5%.

In France telecoms equipment manufacturer Alcatel was in the firing line, falling more than 8%, while internet service provider Liberty Surf lost more than 15%.

Britain's Bookham Technology was hit, too. Nortel is Bookham's biggest customer and the British company saw its shares down 15.5% at one stage. Marconi was another big faller, down 8%.

Later in the day, however, there were signs that investors were recovering their nerve.

"There may have been a bit of overcompensation on the sell side. There will be some buying now the Nasdaq is climbing back," said a New York trader.

By the close in Europe London's Techmark was down 2.3%, while the Neuer Markt's Nemax 50 and France's Nouveau Marché were 0.98% and 3.5% lower respectively. After a modest recovery, Nasdaq again slipped lower and was down 4% in late trading.