Nasdaq Nears April Low as Fear of Fed Feeds Broad Decline

Nasdaq flirted with its April lows Friday amid another broad sell-off in technology stocks--setting the market up for a key test of investor support next week.

The Nasdaq composite closed out another dismal week by losing 148.31 points Friday, or 4.2%, to 3,390.40, ending near its low for the day after struggling all afternoon to pull up.

But Friday’s decline hit the broad market as well. The Dow industrials fell 150.43 points, or 1.4%, to 10,626.85.

The average New York Stock Exchange stock fell 1.6%.

Losers swamped winners by 28 to 12 on Nasdaq, though there still wasn’t much trading volume, relatively speaking: Less than 1.4 billion shares changed hands on Nasdaq.

On the New York Stock Exchange, where volume also was thin, losers topped winners by about 2 to 1.

Analysts said investors can’t shake the fear that the Federal Reserve, which Tuesday raised its benchmark short-term interest rate to 6.5% from 6%, may be planning many more rate increases to slow the economy and keep inflation at bay.

“There is a lot of fear out there,” said Alfred E. Goldman, director of market analysis at brokerage A.G. Edwards & Sons in St. Louis. “People are concerned and worried about how high interest rates will go. This market will be volatile until there is evidence on the table that the Fed will not derail the economy” entirely--that is, start a recession.

The continued hammering of tech stocks, analysts say, in part stems from investors’ belated concerns that the stocks’ historically high price-to-earnings ratios can’t be justified--not in an environment of rising interest rates, anyway.

The only good news Friday was that the Nasdaq composite, though down 3.9% for the week, held above its April 14 closing low of 3,321--the day Nasdaq plunged nearly 10%.

But the renewed selling of major tech stocks left little reason to be hopeful about next week, some traders said.

Intel set a poor tone, falling $6.06 to $117.88 after saying it will restate first-quarter earnings slightly because of a faulty product problem.

The Interactive Week index of Internet-related stocks slid 5.3% Friday to 433.53, falling through its April 14 closing low of 435.52.

Still, within tech, some sectors are holding up better than others. The Amex biotech stock index, for example, fell 2.4% on Friday, but remains about 20% above its mid-April low.

For many investors, however, the only stocks worth buying these days are “defensive” issues that tend to hold up better in a dicey economy. Many “old-economy” drug, food and utilities shares rose Friday while the broad market fell.

“Valuations in the technology sector got so stretched at the start of this year,” said Jim Weiss, deputy chief investment officer for equities at State Street Research and Management Co. in Boston. “The rotation away from technology will continue as people are looking for more diversification and some more defensive elements.”

Likewise, Treasury bond yields were mostly lower Friday--but only because money was fleeing stocks, analysts said.

For the week, strength in some old-economy issues helped the Dow eke out a net gain of 17.48 points.

The Standard & Poor’s 500 index, down 2.1% on Friday, eased 1% for the week.

Foreign markets also were hit hard Friday. Many European markets fell more than 2.5%. The Argentine market dived 6.4%.

Investors will be scouring new economic data in the coming weeks to see whether the Fed’s actions are slowing the economy. The first piece comes Thursday, when the Commerce Department issues a preliminary report on first-quarter gross domestic product.

In commodity trading Friday, gasoline fell almost 4% after the government temporarily suspended clean-air rules in St. Louis to ease a local fuel shortage, signaling Washington’s determination to keep filling stations well supplied this summer.

In granting its third waiver in the city since March, the Environmental Protection Agency allowed the sale of conventional gasoline at pumps through June 19, instead of a cleaner-burning grade known as RFG II that federal rules mandate starting June 1. Concern that RFG II might be in short supply had sent gasoline prices soaring 19% this month.

Crude oil prices also eased.

Among Friday’s highlights:

* Tech stocks sliding included Cisco Systems, down $1.94 to $53.77; Oracle, down $3 to $70.06; and Apple, down $6.75 to $94.

Telecom names also were hit, including Qualcomm, down $7.75 to $89.19.

* Financial stocks, which are particularly vulnerable to interest rate fluctuations, fell. Merrill Lynch fell $5.50 to $103.56. Lehman Bros. lost $3.81 to $81.88.

* Many energy stocks continued to rise. Chevron rose $2.44 to $93.31 and Unocal added 44 cents to $37.88.

In the drug sector, Eli Lilly gained $2.19 to $75.94 and Merck rose $2.50 to $72.44.

Market Roundup, C4

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Tech’s Mixed Bag

Technology stocks’ latest tumble drove the Nasdaq composite index on Friday to within 2% of its April 14 low. But some tech sectors are holding up better than others. Though the Interactive Week Internet stock index on Friday fell below its April low, the Amex biotech stock index is holding well above its lows. Daily closes for the indexes:

Interactive Week Internet index

Amex Biotech index

Amex Biotech index

488.20

433.55

Source: Bloomberg News