Blue Chips Rally On Fed Optimism; Nasdaq Left Out

Optimism that the Federal Reserve may soon lower interest rates sent blue chip stocks soaring Monday, but technology shares failed to join the rally.

“You still have significant earnings disappointments coming in technology,” said Jim Weiss, chief investment officer at State Street Research and Management. “And even though technology issues have come down, there are still valuation issues.”

The Dow Jones industrial average closed up 210.46 points, or 2.0%, at 10,645.42. The broader Standard & Poor’s 500 index rose 10.59 points, or 0.8%, to 1,322.74.

But the tech-laden Nasdaq composite index fell 28.75 points, or 1.1%, to 2,624.52.

Blue chips’ strength appeared predicated on hopes the Fed would act more aggressively than expected at its regular meeting today, urged on by recent economic data ranging from weak holiday sales to signs that industrial production is slowing.

“There’s growing optimism that the Fed will act sooner rather than later to cut rates,” said Alan Skrainka, chief market strategist at Edward Jones of St. Louis. “If they don’t cut rates Tuesday, they’ll send a very strong message that rate cuts are coming.”

Bonds rallied on expectations of favorable action by the Fed. The yield on the benchmark 10-year Treasury note fell to 5.17% from Friday’s close of 5.18%. The yield fell as low as 5.11%, but the rally tapered off late in the session as investors moved into shorter-term securities, which tend to benefit most from expectations of a Fed rate cut.

Financial institutions, which would benefit from a rate cut, moved up. Shares of banker J.P. Morgan rose $6.63 to $166.63, as did American Express, up $2.13 at $56.75.

In the tech sector, chip maker Intel rose 81 cents to $33.25 but Microsoft slipped $1.38 to $47.81 and Cisco Systems plunged $5.23 to $42.94.

“Tech stocks don’t seem to have found a bottom yet,” said Steven Goldman, market strategist at Weeden & Co. “We’re in the midst of what could be a reversal of these high interest rates, and they’re still not ready to stabilize.”

Last week, investors unloaded technology and blue chip shares on fears that the slower growth would translate into disappointing earnings, which would drive stock prices down further. The selling intensified late in the week on a Microsoft earnings warning, which said soft personal computer sales are hurting business.

Corporate profit worries remained evident Monday.

Time Warner fell $9.47, or 13%, to $63.25 after the media giant reduced its 2000 outlook. Amazon.com fell $3 to $19.88, after dipping to $18.94, a 52-week low, on continued worries about online retailers’ performance in a moderating economy. Sun Microsystems Inc. lost $1.88 to $28.56 after it was downgraded by Prudential on concerns of slowing demand for its computers.

Losers topped winners by 23 to 16 on Nasdaq. On the New York Stock Exchange, however, winners had the edge.

Among Monday’s highlights:

* Shares of Internet retailers fell anew after analyst Anthony Noto of Goldman, Sachs lowered his ratings on EToys and three other online retailers, and reduced his profit estimates for Barnesandnoble.com.

EToys fell 75 cents to a record low of 28 cents while Barnesandnoble.com lost 38 cents to $1.50. Noto also downgraded PlanetRX.com, which fell 3 cents to 28 cents; Webvan Group, which rose 3 cents to 50 cents; Ashford.com, which tumbled 53 cents to 50 cents.

He had rated all “market outperformer” except Webvan, which was on the firm’s “recommended list.”

* Oil company shares got a boost from higher crude prices, which jumped 89 cents to $29.76. The Amex oil index rose 3.2%. Kerr-McGee rose $4.25 to $63.81, Chevron gained $2.50 to $80.75 and Exxon Mobil was up $2.25 to $86.38.

Market Roundup, C12-13