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Nasdaq cuts earlier losses; Dow rises

Technology stocks battle back from their lows, but don't have enough escape velocity to finish in positive territory as chip stocks weigh the market down.

Technology stocks battled back from their lows Tuesday, but did not have enough escape velocity to finish in positive territory as chip stocks weighed the market down.

The Nasdaq composite index closed down 7.95 at 2,618.55 after falling as much as 49 points. The Standard & Poor's 500 index inched up 8.48 to 1,326.80, and the Dow Jones industrial average rose 127.28 to 10,652.66.

About eight stocks rose for every five that fell on the Nasdaq, which posted a volume of 2.06 billion shares. The New York Stock Exchange generated an active volume of nearly 1.19 billion shares as 17 stocks advanced for every 12 that declined.

The Nasdaq finished up 9 percent last week from the week before. The S&P 500 closed up about 2 percent, while the Dow shaved off 1 percent.

Last week's rise for the Nasdaq built on another positive rise the week before, the first time the index has strung together two consecutive weeks of gains since August.

Despite the down day for the Nasdaq, many investors see signs of strength.

"One of the big changes that has taken place in the last week is that we're opening weaker and closing strong, which is a good sign," said Todd Clark, head of trading at WR Hambrecht, a San Francisco-based investment bank.

Clark said he believes that investors' moods have been lifted somewhat by the surprise interest-rate cut by the Federal Reserve, and the expectation of more cuts.

The rate cut "changes peoples' psychology," Clark said. "As the adage goes, 'You don't fight the Fed.'"

Breathing easier
Even though earnings growth is expected to slow down over the next few quarters, traders can at least breath easier knowing that future rate hikes will not come into play and erode corporate earnings further.

The markets have also hardened to bad earnings news. "Before, when (investors) got an earnings warning from a tech company, the whole Nasdaq was taken out and shot, now it's confined to specific companies," said Scott Marcouiller, market analyst at St. Louis-based investment bank A.G. Edwards.

Marcouiller noted that four high-profile tech companies, Gateway, Hewlett-Packard, Yahoo and Nokia, released negative earnings news last week, but the news did not drag the markets down as a whole, and even the four guilty stocks closed significantly above their lows for the day.

Yet that does not make the upcoming earnings season irrelevant. Investors will still keep a close eye on companies' forecasts for any sign of future trends in corporate earnings.

The fourth-quarter "earnings that are being reported now are history," Clark said. There is "going to be a lot more emphasis placed on the guidance going forward."

The CNET tech index fell 30.30 to 2,185.98. Decliners led advancers, with 59 of the 96 stocks in the index falling, 35 rising and two remaining unchanged.

Of the 18 sectors tracked by CNET Investor, semiconductor-equipment makers were the day's largest losers, falling nearly 3 percent. E-tailers posted the sharpest gains, rising about 5 percent.

The Philadelphia semiconductor index fell 33.33, or nearly 5 percent, to 637.40, led by chip equipment maker Novellus Systems, which dropped $3.91, or almost 9 percent, to $38.75.

eBay helped e-tailers gain some ground, closing up $3.75, or 9 percent, at $43.81. Priceline.com gained 53 cents, or almost 18 percent, to $3.50, and Freemarkets rose $2.88, or 15 percent, to $21.94.

eToys inched back from the dead. The toy e-tailer rose 41 cents, or about 216 percent, to 59 cents on a volume of 45.6 million shares, almost eight times more than the stock's daily average volume of 5.9 million shares. The stock has traded in a range between 3 cents and $28 during the past 52 weeks.

Shares of Xircom rose $6.59, or about 37 percent, to $24.66 after the maker of mobile network equipment announced that it will be acquired by Intel in an all-cash transaction valued at $748 million. Intel fell 75 cents to $31.38.