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Profit warnings spook investors

After reveling yesterday in the Fed's decision to keep a lid on interest rates, investors quickly sour on stocks as earnings warnings increase in number.

After reveling yesterday in the Federal Reserve's decision to keep a lid on interest rates, investors quickly soured on stocks today as the number of earnings warnings continued to increase.

Several companies have warned this week that their earnings will fall short of expectations, which caused investors to take a conservative stand ahead of the trading-shortened July 4 holiday.

The major markets will be closed for half the day Monday and all day Tuesday, July 4.

"Pre-announcements tend to trend toward the negative as earnings season gets closer," said Joe Cooper, senior research analyst at First Call.

Cooper said that 172 of 306 pre-announcements have been negative. He added that warnings tend to come from "basic materials" industries such as paper, chemical and steel companies, as well as "consumer cyclical" sectors, such as retailers and home furnishings companies.

"Technology is actually running a little lighter than usual," he said, noting some exceptions, such as Xerox.

Cooper did not seem concerned about the warnings, however. "Pre-announcements haven't caused any revisions for the growth rate of the S&P 500," he said, which is currently about 19 percent and could end up moving higher once all the companies finish reporting in July.

"From an earnings standpoint, it's all systems go, everything looks great," Cooper said.

Nevertheless, the Nasdaq composite index today fell 63.11 to 3,877.23, and the Standard & Poor's 500 index dropped 12.43 to 1,442.39.

The Dow Jones industrial average fell 129.75 to close at 10,398.04, led by a drop in United Technologies, down $2.22 to $54.50 for the day.

At the end of regular trading, Intel closed down 63 cents at $131.75. Microsoft dropped $1.75 to $77.19.

The CNET tech index lost 50.40 to close at 2,754.35. Losers edged out winners, with 72 of the 97 stocks in the index falling, 23 rising and two remaining unchanged.

All of the 18 sectors tracked by the index posted losses. Wireless companies and semiconductor equipment makers recorded the steepest drops, falling about 4 percent and 3 percent, respectively. Internet content providers fell the least on the day, sliding a slim 0.04 percent.

SCM Microsystems was the Nasdaq's largest loser, falling $35.69, or 40 percent, to $53.63 after the smart card product maker said sales would fall short of expectations.

Among members of the CNET tech index, Unisys and Compaq Computer fell significantly.

Investors ripped Unisys after the company announced for the second time this quarter that earnings would fall short. The stock fell $8.56, or 37 percent, to $14.56.

Compaq dropped $3.13, or 11 percent, to $25.38. Salomon Smith Barney cut the stock to a "neutral" from a "buy" rating.

On the positive side, Broadcom rose $16.75, or about 9 percent, to $204.75, and Cabletron Systems climbed $2.75, or 12 percent, to $25.25

Cabletron reported a fiscal first-quarter loss yesterday as the maker of computer-networking equipment reorganized into four units and shed older businesses.

The Philadelphia semiconductor index fell 41.86, or about 4 percent, to 1,128.19, led by chipmaker LSI Logic, which lost $4.67 to close at $53.25.