FINANCIAL MARKETS : Early Rally Falters, but Dow Up 9.50 : Stocks: A selloff in semiconductor shares limits the gains prompted by a surge in overseas markets.

From Times Staff and Wire Reports

Market Overview

* The stock market ended mixed after a sharp decline in computer chip stocks helped deflate an early rally.

* A lack of enthusiasm pervaded the bond market, leaving long-term interest rates unchanged.

Stocks

Stocks started the day higher on strength in overseas markets. Tokyo, London, Frankfurt and Paris share prices climbed amid resolution of the political turmoil in Russia and renewed optimism about European economies.

But the rally fizzled as a selloff in semiconductor stocks gathered steam, prompted by a worse than expected earnings report from Advanced Micro Devices. Besides the bad news on third-quarter earnings, the computer chip company also projected flat fourth-quarter results.

The Dow Jones industrial average ended up 9.50 points at 3,587.26 on Big Board volume of 294.57 million shares, up from Monday's 229.38 million. Advancing issues outnumbered declines by only a few issues on the New York Stock Exchange.

The behavior of semiconductor stocks refocused investor attention on corporate earnings as the third-quarter reporting period approaches. The latest three-month period ended with September.

Mary Farrell, an investment strategist with Paine Webber, said investors were selectively picking stocks, looking for companies that will do well in a slow-growth environment.

"The fact that stocks weathered the turmoil in Moscow well suggests the market is being driven by internal factors like earnings," Farrell said.

And there was little else to encourage big moves in or out of stocks, analysts said.

Many investors are waiting for Friday's September unemployment report for some direction on the economy, said David Hale, chief economist at Kemper Securities in Chicago.

In Frankfurt, the 30-share DAX average surged to a record closing high as relief over the calming of the outbreak of violence in Russia pulled investors into a market that has been bubbling below new highs for weeks. The DAX closed 49.01 points higher, at 1,972.73, while in London, the Financial Times 100-share average rose 17.5 points to finish at 3,085.2. French shares ended sharply higher, with the CAC-40 average closing up 30.11 points at 2,158.77. Tokyo's 225-share Nikkei average ended up 57.50 points, to 20,321.93.

The Nasdaq composite index, meanwhile, dropped from its record highs, closing down 2.57 at 762.27, also depressed by computer chip and related stocks.

Among the market highlights: Advanced Micro Devices slipped 4 3/4 to 22 in heavy trading, and other chip stocks followed, with Texas Instruments losing 4 7/8 to 70 1/2 and Intel, which trades on the Nasdaq Stock Market, dropping 2 3/4 to 70. Semiconductor stocks rallied significantly in September.

Krishna Shankar, an analyst with Salomon Bros., attributed the weakness in Advanced Micro's earnings to increased price competition.

* Verifone similarly weighed down the index, losing 8 3/4 to 17 1/2. The company said it expects to report third-quarter earnings of about 5 cents to 8 cents a share lower than the 29 cents reported a year earlier. Lehman Brothers downgraded the stock.

* Among retailers, Sears gained 1 5/8 to 57 5/8, Wal-Mart rose 1 1/4 to 26 and Kmart rose 7/8 to 24 7/8.

* Minnesota Mining & Manufacturing gained 2 1/8 to 103 3/4. Prudential upgraded the stock to buy from hold.

* Procter & Gamble rose 1 5/8 to 49 3/8.

Credit

The only excitement in the Treasury market was among the shortest-term maturities, which were dumped by investors after a Treasury announcement that it planned to sell a record $25.6 billion in short-term securities next Tuesday.

That was up sharply from $23.6 billion from the weekly bill auction held Monday, spurring investor worries that the extra supply would drive down prices in the secondary market, where new securities are traded.

"It's a near-term negative for the market," said Peter McTeague, market strategist at Technical Data in Boston.

At the same time, cities and states rushed out $1.5 billion in new tax-free bonds, but demand was mixed as many investors refrained from major moves ahead of Friday's report on September employment.

The yield on the Treasury's main 30-year bond was unchanged at 6%, while its price fell 3/32 point, or 94 cents per $1,000 in face value.

Short-term Treasury securities were 1/32 point to 1/16 lower and intermediate maturities were unchanged to 1/32 lower, the Telerate Inc. financial information service reported.

However, it said Treasury market traders mostly focused on Friday's employment data, a monthly report that is expected to confirm perceptions that the economy remained stuck in neutral last month.

New York City was the biggest issuer of tax-free bonds Tuesday, selling $600 million in securities through a group of underwriters led by Lehman Brothers.

The federal funds rate, the interest on overnight loans between banks, fell to 3% from 3.063% Monday.

Other Markets

The dollar ended mixed against other major currencies as currency traders also waited for the latest employment data.

Earl I. Johnson, a vice president at Harris Trust & Savings Bank in Chicago, said dollar trading was quiet ahead of Friday's September unemployment report.

The dollar ended at 105.75 Japanese yen in New York, down from 105.79 yet Monday. It was quoted at 1.626 German marks, up from 1.624 marks.

The dollar turned mixed against the British pound, compared with Monday's late rates. Sterling fetched $1.515 in New York, up from $1.514.

In other markets:

- Gold prices were little changed after falling overseas. On the New York Comex, gold for current delivery closed at $353 an ounce, up 30 cents from Monday. Silver settled at $4.063 an ounce, up from $4.054 late Monday.

- Oil futures prices were choppy before dropping slightly, the third losing session in a row. Light, sweet crude oil for delivery in November settled at $18.39 per barrel, down 3 cents at the New York Merc.

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