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Tech rally fades to a whimper

The morning surge in tech stocks fizzles, but the sector still manages some respectable gains as investors go bargain hunting.

4 min read
A morning surge in technology stocks had fizzled by Friday afternoon, but the sector still managed some respectable gains as investors went bargain hunting.

The Nasdaq composite index rose as much as 6 percent earlier in the day but settled to close up 47.36, or about 2 percent, at 2,645.29. The Standard & Poor's 500 index inched up 0.23 to 1,315.18. The Dow Jones industrial average fell 40.95 to 10,373.54.

"Psychologically, it's great to see a few things recovering," said Mark Donahoe, managing director of institutional trading at U.S. Bancorp Piper Jaffray.

Five stocks climbed for every three that declined on the Nasdaq, which generated a volume of 2.22 billion shares. Volume on the New York Stock Exchange was an active 1.18 billion shares. About 2 stocks rose for every one that fell.

Despite the rally in the tech sector, the markets turned in a gloomy week. The Dow fell about 1 percent from last week. The S&P 500 lost nearly 2 percent, and the Nasdaq fell almost 9 percent.

Many of the biggest market blows happened on Thursday. Earnings news from Gateway and Altera caused the Nasdaq to fall 109.01, or 4 percent, to 2,597.92 on Thursday, setting a new 52-week low and dropping nearly 49 percent off its March high of 5,048.62.

"This market is in desperate need of some good news and desperately needs a leader to take it higher," said Michael Palazzi, head of Nasdaq trading at CIBC World Markets. "Yesterday felt like a bottom, but we'll see in a few weeks," he said.

Evidence of a slowing economy continues to build. An industry group reported Friday that manufacturing activity declined for the fourth month in a row in November.

The National Association of Purchasing Managers said its purchasing index fell to 47.7 percent in November, compared with the 48.3 percent it reported in October. Analysts had expected the index to drop to 48 percent in November.

The drop brings the purchasing managers index (PMI), a measure of corporate expenditures, to its lowest level in nearly two years. A PMI above 50 signifies growth, while a figure below 50 means contraction.

But some signs of economic overheating--particularly the nation's low unemployment rate--continue to trouble the Federal Reserve Board. Some economists say the Fed may wait before raising interest rates.

"It's too premature for the Fed to consider easing at this stage in the game," said Diane Swonk, chief economist at Bank One.

Swonk believes that a tight labor market and high oil prices present risks of accelerating inflation. She says the most the markets can hope for after the Fed's December meeting is a shift in its bias to neutral from leaning toward raising rates, noting that the Fed would not likely cut interest rates in order to boost the ailing markets.

"Just because the financial markets are having a rough day doesn't mean that Main Street is having a rough day?and Main Street is doing pretty well," Swonk said.

Most economists view the slowdown as an adjustment from the red-hot growth of the past few quarters.

Many also think the tech sector should continue to propel the economy. "It's misleading to look at the Nasdaq (this year), and say what happened is a reflection of what's going to happen to the technology side of the economy," said John Ryding, chief economist at Bear Sterns, who estimates the U.S. economy will grow 3.5 percent to 4 percent in 2001.

The CNET tech index climbed 10.80 to 2,215.10. Advancers left decliners behind, with 66 of the 97 stocks in the index rising, 29 falling and two remaining unchanged.

All of the 18 sectors tracked by CNET Investor posted gains. Computer data storage makers made the largest jumps, rising nearly 5 percent, followed by telecom equipment makers and wireless companies, which advanced 4 percent each.

In the storage sector, EMC rose $3.88 to $78.25 and Network Appliance gained $4.56, or 9 percent, to $53.94 while Brocade lost 6 cents to $167.88.

Large-cap stocks led the charge higher on the Nasdaq. JDS Uniphase rose $6.13, or 12 percent, to $56.19; Cisco Systems gained 63 cents to $48.50; Sun Microsystems climbed 88 cents to $76.94; and WorldCom advanced $1.06 to $16.

The news was not so great for Intel, which fell $3.94, or 10 percent, to $34.13 after Credit Suisse First Boston analyst Charles Glavin cut fiscal 2001 earnings estimates to $1.66 per share from $1.75. Volume topped 102 million shares, making Intel the most actively traded stock on the Nasdaq.