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Markets hold ground despite earnings warnings

Stocks remain relatively flat, despite a spate of earnings warnings that pummel individual tech shares.

Stocks remained relatively flat today, despite a spate of earnings warnings that pummeled individual tech shares.

The Nasdaq composite index rose 97.47 to 3,960.57, and Standard & Poor's 500 index rose 10.44 to 1,456.67.

The Dow Jones industrial average fell 2.13 to close at 10,481.47 led by SBC Communications, which lost $1.88 to close at $43.88.

The U.S. Labor Department will release an employment report tomorrow that most analysts regard as a key economic indicator that the Federal Reserve uses to determine interest rate policy. If the report indicates a tight labor market, the Fed may be more inclined to raise interest rates in order to cool the economy.

Other measurements, however, are also important. "The key issue for the Fed is the trajectory of demand," said Mickey Levy, chief economist with Banc of America Securities. "We have two more months of retail, auto and housing sales reports which are important because businesses adjust their production and employment levels to demand."

In recent weeks, "the vast preponderance of numbers have suggested a slowing economy," said John Ryding, chief economist at Bear Sterns, adding that market expectations of Fed policy have experienced a "big revision even a week after the last meeting."

"We've gone from seeing an interest rate hike in August as a foregone conclusion to it being a toss-up," he said. As more data indicates a slowing economy, conventional thinking dictates that the Fed will be less likely to raise rates.

Ryding and other economists agree that it takes about 12 to 18 months for the economy to slow following a rate hike, so the economy has yet to display the full impact of the numerous rate increases enacted by the Fed since last year.

Among widely held tech stocks, Intel closed up $5 at $136.63; Microsoft rose $2.44 to $80.94.

The CNET tech index gained 44.49 to close at 2,796.80. And 63 of the 94 stocks in the index rose, and 31 stocks fell.

Of the 18 sectors tracked, wireless companies posted the sharpest gains, climbing 6 percent. Telecom equipment makers were the day's largest losers, sliding 2 percent.

Earnings warnings exacted a heavy toll on several Nasdaq stocks. FirstWorld Communications, a provider of Internet access, was the biggest percentage loser on the Nasdaq. The shares dropped $5.53, or 57 percent, to $4.09. Volume topped 6.5 million shares, nearly 21 times the stock's average daily volume.

FirstWorld warned of lower-than-expected sales for the second quarter and announced its CEO has resigned.

Negative earnings news also drubbed Visual Networks the Nasdaq's second-largest loser in percentage terms for the day. The stock fell $14.25, or 54 percent, to $12 on a volume of 20 million shares, about 25 times the stock's daily average.

Ed Keon, a market strategist, sees the recent warnings in the technology sector as business as usual and thinks the upcoming earnings season will be strong.

"The total number of earnings warnings is only loosely correlated with earnings growth," said Keon. "Earnings warnings are more heavily concentrated in the tech sector than other sectors," he said. "In an industry that's very competitive and growing rapidly (like technology), one slight miscalculation could cause a miss in earnings."

Among members of the CNET tech index, Ingram Micro posted strong gains, climbing $1.63, or nearly 10 percent, to $18.56. Banc of America Securities raised the stock to "buy" from "market perform" today.

The Philadelphia semiconductor index gained 48.29, or almost 5 percent, to 1,119.10, led by Altera, which rose $8.13 to close at $100.56.

This week's profit warnings from BMC Software and Computer Associates cast doubt over shares of IBM, which sank $3 to $102 today on concerns that mainframe and mainframe software sales are soft.