Tech Stocks Lead Tumble; Dow Slumps 86

Stocks tumbled Wednesday in a late sell-off led by recently high-flying technology issues.

Meanwhile, bond yields rebounded, and the streaking dollar reached a four-year high against the Japanese yen.

On Wall Street, the Dow Jones industrials sank 86.58 points, or 1.3%, to 6,746.90, after surrendering a modest midday rally that accompanied the Federal Reserve Board’s widely expected decision to leave short-term interest rates unchanged for now.

Traders said the stock market slumped as sentiment toward many tech stocks turned sharply negative in the afternoon.

One catalyst: Prudential Securities’ semiconductor analyst cut his rating of computer chip giant Intel to “‘hold” from “buy,” saying the best times were over for the stock. Intel slumped 7 1/2 to 157 1/4.

Intel’s fall, and renewed declines in many computer-networking stocks, socked the Nasdaq composite index for a 25.31-point loss, or 1.8%, to 1,348.44.

“Year-to-date, the best-performing group had been technology. So if the market’s going to back and fill, then investors will have to take profits out of the best-performing sector,” said Jeffrey Applegate, chief investment strategist at Lehman Bros.

Cisco Systems, a leading computer networker, reported late Tuesday that its fiscal second-quarter profit improved 61%. But the growth still disappointed some investors, and the stock fell 4 1/8 to 63 amid growing jitters about the overall health of the computer-networking industry.

In recent weeks, networking firms such as Cascade Communications and 3Com have issued worrisome earnings news.

With tech issues falling, selling accelerated in the broad market as well. The Dow was off 120 points before pulling back up. By the final bell, losers topped winners by 16 to 9 on the New York Stock Exchange and 24 to 17 on Nasdaq, in heavy trading.

Meanwhile, bond yields rose for the first time in seven sessions as traders ignored the Fed’s signal that it isn’t worried about inflation and focused on a government report due Friday that may show job growth was strong in January.

The yield on the benchmark 30-year bond rose to 6.75% from 6.70% on Tuesday.

Also weighing on bondholders’ sentiment is the Treasury’s plan to sell $39.75 billion in debt next week. That’s more than the $37.9 billion expected by economists surveyed by Bloomberg News.

In currency trading, the dollar continued its ascent, reaching a 47-month high against the yen amid growing speculation that major industrialized nations won’t act to halt the rally.

The dollar rose to 123.40 yen in late New York trading from 122.47 yen Tuesday. Earlier, the dollar reached 123.85 yen, its highest since Feb. 9, 1993.

Finance ministers and central bank heads from the Group of Seven nations will meet in Berlin on Saturday. While some Japanese officials have hinted at opposition to the dollar’s strength, and some Bundesbank officials have said its ascent is nearly over, the G-7 isn’t expected to call for a stop to the move. The G-7 nations are the U.S., Japan, Germany, Britain, Canada, France and Italy.

Among Wednesday’s highlights:

* The prospect of weaker earnings growth for tech bellwether Intel hurt shares of such computer-related stocks as Texas Instruments, down 2 1/4 to 74 1/4; Micron Technology, down 2 at 32 1/4; and Compaq, down 4 to 80 5/8.

PeopleSoft, which beat Wall Street estimates with its quarterly earnings, lost an early gain and tumbled 4 1/2 to 45 1/4.

* Among networking stocks, 3Com dropped 3 7/8 to 54 7/8 and Cabletron sank 1 1/8 to 31 5/8. (Investor Spotlight, D6.)

* Some financial stocks rallied after Dean Witter Discover and Morgan Stanley agreed to merge in a $10-billion deal. Morgan Stanley surged 7 7/8 to 65 1/4, while Dean Witter rose 2 to 40 5/8.

Other brokerages benefited from the merger news: A.G. Edwards rose 1 7/8 to 36 3/8, Bear Stearns gained 1/2 to 32 3/8 and Merrill Lynch rose 1 1/8 to 86 1/2.

* Aetna slumped 4 1/4 to 78 after reporting a big fourth-quarter loss related to its purchase of US Healthcare.

In the commodities market, gold prices slid to the lowest levels seen in more than three years before staging a modest late rally.