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Markets split as tech stocks drag Nasdaq lower

Disappointing earnings news helps drive technology stocks down, as analysts downgrade their positions on bellwether e-tailer

Disappointing earnings news helped drive technology stocks down today, as analysts downgraded their positions on bellwether e-tailer and WorldCom warned of slowing sales in the second half of the year.

The Nasdaq composite index fell 145.47, or nearly 4 percent, to 3,842.25. The Standard & Poor's 500 index inched down 2.80 to 1,449.62.

The Dow Jones industrial average rose 69.65 to close at 10,586.13, as risk-weary investors grabbed shares of companies with steady profits, including Exxon Mobil, Coca-Cola and Johnson & Johnson.

The CNET tech index lost 117.22 to close at 2,754.28. Losers outnumbered winners, with 65 of the 82 stocks in the index falling, 14 rising and one remaining unchanged.

All of the 18 sectors tracked took a hit today. Semiconductor equipment companies posted the sharpest drops, sliding about 8 percent, followed by wireless companies, which fell 7 percent.

Disappointing earnings yesterday from Amazon led the drop today in the e-tailing sector, which fell nearly 7 percent. Amazon shares fell $4.69, or 13 percent, to $31.38. They traded as low as $29.75, a new 52-week low compared with the high of $113.

Amazon's second-quarter sales missed analysts' forecasts and prompted some brokerages to cut their ratings on the online retailer.

Merrill Lynch analyst Henry Blodget, once one of Amazon's most bullish boosters, also joined the list of stock watchers who downgraded the company.

WorldCom reported a rise in second-quarter profits, but the stock fell because the company predicted slower revenue growth for the rest of the year. The shares fell $5.44, or 12 percent, to $39.31 on a volume of 62.9 million shares, making it the most actively traded stock on the Nasdaq.

Nokia lost more than a quarter of its value after reporting that third-quarter earnings would be lower than second-quarter earnings. The wireless telecommunications giant said that earnings would be below expectations because of "timing of new product introductions (and) seasonality." That goaded many investors into selling wireless and chip stocks, which were also down sharply today.

Take a look behind the earnings numbers this week on

Saturday and Sunday, July 29 and July 30, 4 to 5 p.m. ET on CNBC

The Employment Cost Index (ECI) rose 1 percent for the second quarter compared with the previous quarter's jump of 1.4 percent. The index measures changes in compensation costs, including wages, salaries and employer costs for employee benefits.

The index is up 4.4 percent since last year, the highest jump in nine years. The rise, which Merrill Lynch chief economist Bruce Steinberg described as "tame," also suggests that the tight labor market shows few signs of cooling. If labor costs increase too much, the rate of inflation could rise.

"Despite the tight labor market, there is little evidence of any pickup in wage pressures," Steinberg wrote in a report. "As the economy cools a bit, wages are likely to remain well behaved, and we don't expect further upward pressure on benefit costs."

Some analysts say the numbers indicate that the Federal Reserve may increase interest rates.

"The Fed will most see story: An Amazon bull pulls backlikely tighten interest rates later in the year," said Greg Mount, an economist at Bank One. Mount speculated that the Fed will leave rates alone when it meets next on Aug. 22, but it is likely to raise them in September.

The government also reported today that the second-quarter employment cost index increased 1 percent, as forecast, and less than the 1.4 percent leap in the first quarter.

Accelerated Networks shares lost almost half their value after the phone-equipment maker reported second-quarter sales that fell short of some investors' expectations. The company fell $20.69, or 49 percent, to $21.31.

Axent Technologies rose $4.94, or almost 26 percent, to $24 after Symantec announced it would buy the software maker for $975 million in stock. Symantec fell $13.44, or 21 percent, to $50.25.

Shares of cell phone maker Nokia also took a licking, falling $14.31, or nearly 25 percent, to $41.50 after warning that third-quarter sales will be lower than expectations.

The Philadelphia semiconductor index fell 84.30, or 8 percent, to 949.90, led by chipmaker Lattice Semiconductor, which lost $11.13, or nearly 17 percent, to close at $55.