MIDDAY MARKETS: Inflation fears deflate techs

Pessimists ruled again at midday Thursday, calling the glass on inflation half-full rather than half-empty following key economic reports. The Nasdaq sunk 56.60 to 2649.24, while the Dow Jones industrial average dropped 186.17 to 10785.90.

Inter@ctive Week's @Net Index sunk 8.96 to 284.

The economy grew at a rate of 2.3 percent in the second quarter, lower than both the previous quarter and market expectations for the latest three months. But the employment cost index, a measure of employment costs particularly telling of labor inflation, jumped 1.1 percent in the second quarter. Economists were expecting an increase of less than 1 percent.

It might be enough to make the central bank act "forcefully" with interest rates, as Federal Reserve Chairman Alan Greenspan warned it would at the first sight of rising price pressures.

Earnings above estimates were the big news of the day, though rate-obsessed investors didn't seem to care. Macromedia Inc. (Nasdaq: MACR) sunk 7/8 to 36 3/4, though it posted first-quarter earnings of $7.2 million, or 15 cents a share, outdoing First Call's estimate by a penny.

Ingram Micro Inc. (NYSE: IM), up 1/2 to 32 13/16, posted second-quarter earnings of $51.7 million, or 35 cents a share Thursday, besting First Call's prediction by a penny.

In telecom news, the Wall Street Journal Europe reported Deutsche Telekom is in talks to acquire France Telecom's 10 percent stake in U.S. Sprint Corp. (NYSE: FON), up 1 13/16 to 53 1/16.

AT&T Corp. (NYSE: T), down 1 1/8 to 53 13/16, posted second-quarter profits of 49 cents a share. MCI WorldCom, Inc. (Nasdaq: WCOM), down 1 5/8 to 85 1/16, also reported earnings. It said that gains in Internet, international and data communications services, and the impact of the MCI merger put second quarter earnings right on target with First Call's prediction at 44 cents a share, or $857 million.

Micron Technology Inc. (NYSE:MU), the biggest U.S. maker of computer memory chips, was one of the few techs in the green, up 1 5/16 to 63 1/16 after PaineWebber raised its price target to $72. Microsoft Corp. (Nasdaq: MSFT) sunk 2 1/4 to 87 3/4, Intel Corp. (Nasdaq: INTC) dropped 1/8 to 70 3/16. Advanced Micro Devices Inc. (NYSE: AMD) was also up, 7/16 to 17 1/4 following news it is considering seeking a partner to take a stake in a new $1.8 billion chip factory in Dresden, Germany.

Compaq Computer Corp. (NYSE: CPQ) fell 9/16 to 25 3/8 on the heels of loss reported for its second quarter. IBM Corp. (NYSE: IBM) dropped 2 7/16 to 125 15/16, Gateway Inc. (NYSE: GTW) fell 11/16 to 77 13/16, and Dell Computer Corp. (Nasdaq: DELL) dropped 1 1/8 to 41 5/8. Apple Computer Inc. (Nasdaq: AAPL) also moved down, 3/16 to 54 3/16.

Cisco Systems Inc. (Nasdaq: CSCO) shed 1 7/16 to 61 7/8, 3Com Corp. (Nasdaq: COMS) dropped 3/8 to 24 5/8, and Lucent Technologies Inc. (NYSE: LU) fell 1 3/8 to 65 1/2.

Internet stocks were punished the hardest. Yahoo! Inc. (Nasdaq:YHOO) shed 5 3/8 to 137 5/8 and Amazon.com Inc. (Nasdaq: AMZN) sunk 2 13/16 to 102 15/16. America Online Inc. (NYSE: AOL) was down 3 3/8 to 99 3/8. Other Net notables included: Lycos Inc. (Nasdaq: LCOS), down 1 15/16 to 44, Infoseek Corp. (Nasdaq: SEEK), down 13/16 to 39 13/16, Excite@Home (Nasdaq: ATHM), down 2 to 48 3/8, and Mindspring (Nasdaq: MSPG) in the red 1 5/16 to 34 3/16.

CMGi Inc. (Nasdaq: CMGI) also shed 4 3/4 to 93 3/8.

Oracle Corp. (Nasdaq: ORCL) fell 3/8 to 37 5/16, and Sun Microsystems Inc. (Nasdaq: SUNW) dropped 3 to 67 3/4.