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THE WEEK AHEAD: Playing poker with the Fed

Was Fed Chairman Alan Greenspan trying to warn the market that an interest-rate hike could be on the horizon this week during his Humphrey-Hawkins testimony? Or was he just being his mysteriously cautious self?

Depending on your point of view, the answer may determine the market's fate in the next month ahead of the Fed's next policy meeting. It's a sad state of affairs that when corporate earnings are skyrocketing, the market bases its mentality on what amounts to deciphering the Fed.

"The market is still trying to figure out exactly what Greenspan said," Arun Kumar, senior U.S. equities strategist at Lehman Brothers. "The bond market seems to have taken the testimony as negative."

In his semi-annual congressional testimony Thursday, Greenspan said the Fed would act "promptly and forcefully" to stifle inflation, and added that the surge in stock prices could be overdone.

"The bond market is still nervous about an interest-rate increase," said James Volk, co-director of institutional trading at D.A. Davidson.

For the week, the Dow plunged 218 points to close at 10,910.96 while the Nasdaq plummeted 172 points to 2,692.41.

Next week, investors will pay close attention to the Employment Cost Index report which could provide a clue as to how the Fed will evaluate interest rates.

The irony of this week's pullback is that earnings from the likes of Gateway Inc. (NYSE: GTW), America Online Inc. (NYSE: AOL), Microsoft Corp. (Nasdaq: MSFT) and International Business Machines Corp. (NYSE: IBM).

"The earnings story has been discounted. The fact that earnings are coming in positive isn't news to anyone anymore," Kumar said.

America Online's story is perhaps the most interesting. After earning 13 cents a share in its latest quarter, AOL beat the Street estimate by 2 cents a share.

Analysts raised their fiscal 2000 sales and earnings estimates and reiterated their "buy" recommendations. Inc. (Nasdaq: AMZN) met analysts estimates in its second quarter, losing $82.8 million, or 51 cents a share, on sales of $314.4 million. But that $314.4 million is only a 7 percent jump from the first quarter.

As a result, several analysts cut the stock.

Looking ahead to next week, technology investors will pay close attention to earnings from AT&T Corp. (NYSE: T) and Compaq Computer Corp. (NYSE: CPQ).

First Call consensus expects AT&T to earn 48 cents a share in the quarter. Last quarter, it returned a profit of 67 cents a share.

Its shares moved up to a high of 64 1/16 in February after falling to a low of 32 ? in August.

Compaq, which named a new CEO this week, will report a loss in its second quarter. Analysts are looking for a loss of 11 cents a share.

Last quarter, it earned $281 million, or 16 cents a share, on sales of $9.4 billion.

Also reporting next week: eBay Inc. (Nasdaq: EBAY), TicketMaster-CitySearch Online Inc. (Nasdaq: TMCS), GTE Corp. (NYSE: GTE) and Inc. (Nasdaq: EGGS).