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MIDDAY MARKETS: Jobless news dampens tech rally

A surprisingly sharp jump in the number of people filing for unemployment benefits sent the Nasdaq rally into a tailspin at midday Thursday. The Nasdaq fell 61.30 points to 2,159.30.

The Dow Jones industrial average slipped 135.99 points to 10,740.69, and the Inter@ctive Week @Net Index fell 8 points to 212.20.

U.S. unemployment applications jumped unexpectedly last week, according to figures released Thursday by the Labor Department. First-time jobless claims, which give an early reading on the resilience of the labor market, rose by 9,000 to 421,000 in the week ended April 28 from a revised 412,000 in the prior week, the department said. Private economists surveyed by Reuters had expected claims to drop to 400,000.

"Ultimately, weakness in the labor market causes weakness in incomes, which threatens consumer spending, so the chance of slipping into a full-scale recession is increased," Pierre Ellis, senior economist at Decision Economics told Reuters.

Cirrus Logic's (Nasdaq: CRUS) new strategy outweighed bad news that its revenue would decline. Investors sent shares up $2.50 to $19.20, and Salomon Smith Barney gave the stock an upgrade Thursday.

Shares of Handspring (Nasdaq: HAND) dipped $2.41 to $15.09 after a Lehman Brothers analyst downgraded the stock, saying it could be hurt by pricing pressures. The downgrade comes a day after Handspring's main competitor, Palm (Nasdaq: PALM), off $1.36 to $8.39 Thursday, said its U.S. retail sales were slipping.

Shares in Macromedia (Nasdaq: MACR) plunged $5.53 to $21.05 as analysts slashed estimates and ratings for the company following its fourth-quarter report.

A top Dell Computer (Nasdaq: DELL) executive said Thursday that the company will be "ruthless" about cutting costs, but declined to comment on speculation about more layoffs. Shares were off 93 cents to $25.80.

Amazon (Nasdaq: AMZN) was off 47 cents to $16.64, AOL Time Warner (NYSE: AOL) fell $1.03 to $50.31 and Yahoo (Nasdaq: YHOO) lost $1.08 to $21.23.

Cisco Systems (Nasdaq: CSCO) fell $1.16 to $18.84, Intel (Nasdaq: INTC) fell $1.49 to $30.45, Microsoft (Nasdaq: MSFT) fell 72 cents to $69.04 and Oracle (Nasdaq: ORCL) was off 40 cents to $16.77.

ZDII staff and Reuters contributed to this roundup.