Tech Stocks Slide, but Dow Rises

An upbeat report from Microsoft Corp. on Wednesday helped spark a midday rebound in the stock market, halting an early plunge.

Still, many leading technology shares closed at new multiyear lows, though they rallied from their worst levels of the session.

The Nasdaq composite lost 11.77 points, or 0.7%, to 1,759.01, but it closed above its session low of 1,715.86.

The Dow Jones industrial average ended with a gain of 35.78 points, or 0.4%, to 10,033.27 after being off as much as 112 points.

Trading volume rose sharply as more investors returned from summer vacations.

The market’s mood was gloomy at the start of the session, as many battered tech stocks slid again. Investors gave a cold reception Tuesday to the surprise announcement of a proposed merger between Hewlett-Packard and Compaq Computer, and that continued early Wednesday.

But a rally ensued after Microsoft Chief Financial Officer John Connors, speaking at an investor conference in Boston, said the software giant’s expectations for sales and profit for the fiscal year ending in June 2002 haven’t changed since its last meeting with analysts, in late July.

Microsoft stock, which traded as low as $55.29 Wednesday, ended with a gain of $1.64 to $57.74 on Nasdaq. The move helped lift the Dow because Microsoft is one of the 30 Dow components.

“The market turned on a dime,” said Erik Gustafson, a portfolio manager at Stein Roe & Farnham in Chicago. “Both the Dow and Nasdaq were deeply in negative territory, and upon hearing the Microsoft outlook, the markets turned. It shows you how susceptible this market is to both good and bad news.”

Some analysts have argued that the market is severely “oversold”--a technical term meaning that prices are overdue for a partial snapback simply because they have fallen so fast.

The Nasdaq index has slumped 15% since Aug. 3, and is nearing its two-year low of 1,638.80 reached April 4.

But amid an ongoing deluge of corporate profit warnings, and no clear sign that the U.S. economy is emerging from its malaise, many investors remain leery of making substantial bets on stocks, analysts say.

“There is still the fear that maybe the worst isn’t behind us,” said Uri Landesman, chief investment officer with AFA Management Partners, which oversees $250 million in assets. “That’s the big battle--have we seen the worst or have we not seen the worst? That is what is really buffeting the market. It’s a skittish market. There’s not a lot of conviction.”

Despite the rebound in key indexes Wednesday from their lows, losers outnumbered winners by 3 to 2 on the New York Stock Exchange and by 23 to 13 on Nasdaq.

“The market is just not showing much confidence here,” said Duncan Richardson, chief equity strategist at Eaton Vance. “We’ve got people back from summer vacation, but they’re not sure what to do.”

In other markets, Treasury bond yields stabilized after surging Tuesday on a surprisingly strong report from the U.S. manufacturing sector.

The dollar jumped versus the Japanese yen, rising to 120.73 yen from 119.52 Tuesday. The yen had been rallying in recent weeks, but traders said fears are growing that Japan’s economy is in worse shape than is already assumed.

“There’s no good reason for people to want to hold yen for investment purposes, and therefore we think the yen will depreciate on its own,” Carl Weinberg, economist at High Frequency Economics in Valhalla, N.Y., told Bloomberg News.

Japan’s key stock index, the Nikkei-225 index, fell 1.6% to 10,598.79 Wednesday, though it remained above its 17-year low of 10,409 set Monday.

Among Wednesday’s highlights:

* Major tech shares ending lower included IBM, down $1.14 to $100.35; Agilent, down $1.23 to $24.60; Motorola, off $1.09 to $16.40; and Cisco Systems, down 89 cents to $14.88.

But Intel rose 62 cents to $27.47 ahead of a forecast it’s expected to give today for its chip sales and other products.

* Telecom stocks were particularly weak after Merrill Lynch downgraded a number of shares, including Alcatel, which fell $1.08 to $13.62, and Nokia, which lost $1.15 to $13.85.

* On the plus side, Procter & Gamble gained 36 cents to $75.88 and Colgate-Palmolive jumped $1.03 to $55.73 after both household products companies sounded more optimistic about near-term earnings.

P&G; said profit excluding restructuring expenses in its fiscal first quarter ending Sept. 30 will rise 1% to 6%. Colgate said it expects to meet the average 49-cents-a-share estimate of analysts polled by Thomson Financial/First Call for the current quarter. Both firms said cost cutting will help drive earnings.

* Drug stocks attracted buyers. Merck rose $2.40 to $67.70; Pfizer added 75 cents to $39.34.

Market Roundup, C7-C8