A shock profits warning from US computer chip maker Intel Corp has sent serious ripples through the business world and left Britain's technology shares reeling.

The FTSE 100 index kept off its recent lows, but remained deep inside negative territory on Friday morning after Intel's overnight warning that third quarter profits would come in way below expectations.

Initially, the news sent the index tumbling down more than 120 points. By mid morning it had pulled back a little, though it remained around 81 points down at 6,118.2.

When the news broke in the US last night, shares in the company immediately plunged by 21%, sending its value down by $77bn.

Intel's sales growth in the third quarter is now expected to reach only 3-5% compared with the 6-8%, expected by the market.

The company - the world's largest chip maker and manufacturer of computer, networking and communications products - blames a lack of European demand for its microprocessors and expects profit margin percentages to be down by up to 2%. Revenue in the second quarter of this year was $8.3bn.

Intel's statement, which came shortly after a warning by Sprint Corp, has compounded fears of a sharp slowdown in the tech and telecommunications sectors.

Almost all of the top 10 losers on the FTSE 100 were technology shares, such as UK chip designer ARM Holdings which dived 8.1%, while fibre optics firm Bookham Technology dropped 7%.

Telecoms shares also suffered from the fallout, which was worsened by the Nasdaq's overnight decline. The Vodafone Group weighed in with a drop of 2.3%, while Colt Telecom Group was the sector's biggest loser, down 6.3%. BT also lost out, shedding 20 to settle at 728.

There was some cheer on the FTSE today, however, with the Bank of Scotland heading in the opposite direction and rising 2.9%, thanks to merger speculation.

British Airways was also up 2%, as investors breathed a sigh of relief that merger talks with KLM Royal Dutch Airlines had ended.