Net Stocks Lead Sell-Off as Brazil Worries Deepen

Profit takers took control of the stock market on Tuesday, triggering the steepest decline in a month as fears over Brazil’s fate shook Wall Street.

Meanwhile, U.S. bond yields slid, and the dollar rebounded sharply against the yen.

The Dow Jones industrials sank 145.21 points, or 1.5%, to 9,474.68, and highflying technology stocks suffered heavy selling.

The tech-heavy Nasdaq composite index tumbled 63.84 points, or 2.7%, to 2,320.75 after seven straight record sessions.

In the Internet sector, big losers included America Online, down $11.50 to $153.63; auction site EBay, down $51 to $240.50; and At Home, off $21.88 to $100.

The Interactive Week index of 50 Net-related stocks sank 5.5%, its largest drop since Nov. 30.

“Stocks that have almost doubled in a week are bound to experience extreme volatility,” said Bruce D. Smith, an analyst with Jefferies & Co. in New York. “Could this be the end? Yes. Is it? I don’t know.”

“People are looking for reasons to take profits here, because the markets have moved so much in the first couple weeks of the year,” said James Volk, co-director of institutional trading at D.A. Davidson & Co. in Portland, Ore.

Nervous investors found a reason in Brazil, where stocks dove 7.6% and bond yields hit four-month highs. Concern is growing that the government will be forced to devalue the currency in an effort to revive the slumping economy. But a devaluation could reprise the global market panic that struck last August, when Russia devalued.

The current crisis was triggered last week when Brazil’s Minas Gerais state said it would stop paying debts to the central government. That threatened to widen the government’s projected $64-billion budget deficit.

On Tuesday, traders estimated that nearly $1 billion in capital fled the country on devaluation fears.

“I’m really starting to wonder where Brazil is going to get the $60 billion in foreign currency it needs this year,” said Francisco Gros, Brazil chairman for Morgan Stanley Dean Witter & Co.

The International Monetary Fund stepped in to bolster Brazil’s financial reserves in November, attempting to forestall a fiscal crisis.

On Tuesday, President Fernando Henrique Cardoso rejected calls by cash-strapped states to renegotiate the $83 billion they owe the government.

Brazil’s woes helped drag Mexican stocks down 3.7% and the Argentine market down 3.5%.

The U.S. Treasury bond market benefited from the turmoil: Yields fell across the board amid another “flight to safety.”

The 30-year T-bond yield fell to 5.22% from 5.31% on Monday.

The bond market also was helped by a turnaround in the dollar, which leaped to 112.43 yen, up 3.5 yen, the biggest one-day gain in 3 1/2 years, on reports that the Bank of Japan sold yen and bought dollars to stop the yen’s latest surge.

In Tokyo, Finance Minister Kiichi Miyazawa said Japanese “government experts have taken steps” in the currency market to restore stability, indicating dollar buying by the Bank of Japan.

“Japanese exporters probably complained that a strong yen was hurting them,” said Mike Ng, a global bond manager at American Express Financial Advisors in Minneapolis. “This could be a turning point for the yen.”

On Wall Street, meanwhile, sellers ran the show Tuesday.

Losers outnumbered winners by a 22-9 ratio on the New York Stock Exchange in heavy trading.

“We could be at an important point,” said Bill Meehan, chief market analyst at Cantor Fitzgerald in Darien, Conn. “My major concern is . . . that when these Internet stocks break, they might take the whole market with them.”

Most Internet-related shares ended sharply lower. But after the close of trading, Yahoo reported quarterly earnings that beat analysts’ expectations. Chip giant Intel also reported strong earnings.

Despite tech stocks’ heights, upbeat earnings in the sector could continue to buoy stocks, some analysts say--especially in an environment where many other companies are suffering with weak earnings.

Among Tuesday’s highlights:

* Even as some Net-related names dove, their losses barely dented the gains they had racked up on Monday alone. Go2Net, for example, fell $20.94 to $99, but it had zoomed $53.94 on Monday. Broadcast.com, which broadcasts news and music over the Internet, tumbled $62.06 to $223, but it had surged $87.56 on Monday.

“This is the first time in a while that we’ve seen a lot of inconsistency in the group,” said Derek Brown, analyst at Volpe Brown Whelan. “You’ve got a handful of [stocks] down significantly, a handful up significantly and some that have swung back and forth.”

* Financial stocks slid on worries that Brazil could trigger another global market sell-off. BankOne fell $2.44 to $53.88, Chase Manhattan lost $2.38 to $73.88 and Merrill Lynch sank $3 to $73.

* Industrial stocks that had been big gainers since Dec. 31 fell back, including GM, off $3.06 to $83, and Alcoa, down $2.94 to $85.25.

* Cheesecake Factory dove $6.78 to $22.13 after warning of weaker earnings.

*

Market Roundup, C7