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MARKET CLOSE: Low-key rally follows rate cut

After jagged spikes and dips in the stock market earlier in the day, investors celebrate the Federal Reserve's fifth interest-rate cut this year, creating a restrained tech rally Tuesday.

The Nasdaq inched up 3.80 points to 2,085.72, and the Dow Jones industrial average fell 4.36 points to 10,872.97.

The Federal Reserve did what was expected of it Tuesday and cut interest rates by a half-percentage point.

Along with making the cut, the Fed doled out news that made investors happy. The policy makers said they'd maintain their aggressive stance to ward off more economic weakness. "The erosion in current and prospective profitability, in combination with considerable uncertainty about the business outlook, seems likely to hold down capital spending going forward," the Fed said in its statement.

"They did the big cut that was expected, and they continue to see the balance of risks weighing to the downside," Pierre Ellis, senior economist at Decision Economics told Reuters. "They go on to note inflation is expected to remain contained. So the door is open for more easing, quite wide open."

The Fed also chopped the discount rate--the interest rate that the Federal Reserve charges on direct loans to commercial banks--by a half point to 3.5 percent.

After investors' initial burst of buying and technology stocks' brief dip earlier in the day, the stocks slowly crept up by the close of the markets.

One of the day's biggest movers was Ciena (Nasdaq: CIEN), which was down $4.50, or 8 percent, to close at $55.44. Earlier in the day Lehman Brothers analyst Steven Levy said he expects the company to meet estimates when it reports quarterly results this Thursday, but he said the company could have a "cautious" stance on its outlook.

Levy said he would "not be surprised if management even suggests that actual sales performance for this fiscal year and next could end up at the middle to lower end of the current guidance range."

In other company news, Rolex filed suit against eBay's (Nasdaq: EBAY) German subsidiary, accusing it of trademark infringement and unfair competition, the auction company revealed in a Securities and Exchange Commission filing. eBay shares rose 84 cents to $56.05.

On the world's PC market, growth is slowing even more, according to Merrill Lynch, which reduced its forecasts for the current year from 7 percent growth to 3 percent growth. But Merrill Lynch analyst Steve Fortuna said in a research note today that while this year could be weak, the outlook for next year is looking up.

Gateway (NYSE: GTW) fell 6 cents to $17.69, Dell Computer (Nasdaq: DELL) was up 30 cents to $24.49 and Compaq Computer (NYSE: CPQ) was off 44 cents to $15.78.

Struggling telecommunications equipment company Lucent Technologies (NYSE: LU) signed two major equipment deals Tuesday. Shares slid 6 cents to $9.65.

Semiconductor equipment maker Silicon Valley Group (Nasdaq: SVGI), down 40 cents to $31.30, said third-quarter sales will be lower than previously expected, and said it will cut its work force by about 400 people, or 10 percent. (Nasdaq: AMZN) was up 21 cents to $13.54, AOL Time Warner (NYSE: AOL) was off 85 cents to $50.75 and Yahoo (Nasdaq: YHOO) rose 95 cents to $18.05.

Intel (Nasdaq: INTC) lost 21 cents to $27.20, Microsoft (Nasdaq: MSFT) slipped 45 cents to $68.45 and Oracle (Nasdaq: ORCL) slipped 11 cents to $15.93.

ZDII staff and Reuters contributed to this roundup.