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Markets overcome earnings news to finish higher

U.S. markets close up as wary Wall Street investors cautiously venture out of hibernation despite the winter earnings chill.

U.S. markets closed up Wednesday, as wary Wall Street investors cautiously ventured out of hibernation despite the winter earnings chill.

The Nasdaq composite index gained 45.76, or almost 2 percent, to 2,539.28, and the Standard & Poor's 500 index rose 13.73 to 1,328.92. The Dow Jones industrial average climbed 110.72 to 10,803.16.

"A lot of people are on the sidelines or away, so it doesn't take much to move a stock either way," said Tony Cecin, head of trading at U.S. Bancorp Piper Jaffray. Cecin believes that it might be an up week for the markets as investors take advantage of the lower volume to shop for bargains.

"But I don't see a lot of conviction" to the market, he added.

Volume on the New York Stock Exchange was an active 1.05 billion shares as advancers outnumbered decliners by a ratio of more than 2-to-1. About 11 stocks rose for every nine that fell on the Nasdaq, which generated a respectable volume of 2 billion shares.

Large-cap tech stocks made some gains. Applied Micro Circuits rose $8.03, or 12 percent, to $73.59, and JDS Uniphase gained $5.50 to $47.38.

Microsoft fell 48 cents to $46.44, and Oracle dipped 25 cents to $30.69.

The CNET tech index rose 20.5 to 2,054.02. Winners outpaced losers, with 64 of the 97 stocks in the index rising, 30 falling and three remaining unchanged.

Big drop for Network Associates
Earnings news came to the forefront again, and the guilty party this time was computer-security software maker Network Associates, which dropped $7.19, or 61 percent, to $4.56 on a volume of about 75.5 million shares, more than 31 times the stock's average daily volume. The decline made the company the most active stock and largest percentage loser on the Nasdaq.

Network Associates said Tuesday that it expects a fourth-quarter loss before charges of $130 million to $140 million on sales of $55 million to $65 million. The company, which attributed the shortfall to a slow economy and reduced inventory levels at some key distributors, reported net income of $4 million in the previous quarter on about $238 million in sales.

The Santa Clara, Calif.-based company also announced that its CEO and president will step down once a replacement has been found.

eXcelon also released dour earnings news and fell $1.41, or 52 percent, to $1.28. The maker of Internet software said it expects a fourth-quarter loss of 23 cents to 26 cents a share. Analysts surveyed by First Call expected the company to lose 4 cents for the quarter.

The company also expects to post revenue between $14.5 million and $15.5 million for the quarter compared with the previous quarter's $18.8 million and last year's fourth-quarter revenue of $17.4 million. eXcelon blamed the miss on slowing demand and a weak global economy.

The fourth quarter has been tough on earnings predictions. Analysts forecast earnings for companies in the S&P 500 to grow 5 percent from a year ago, according to First Call. On Oct. 1, Wall Street was expecting fourth-quarter earnings to increase by 15.6 percent. The revised forecast reflects a severe slashing, as growth predictions are usually revised downward by just 3 percentage points during a quarter.

Tech companies have taken an even more severe beating. Earnings for the 81 tech companies in the S&P 500 are expected to have year-over-year growth of only 4 percent. Previously, fourth-quarter earnings were expected to grow by 29 percent.

The concern over earnings has carried into the mutual fund market. The net cash flow of money going into stock mutual funds decreased to $5.68 billion in November from October's $19.2 billion, according to the Investment Company Institute (ICI), an industry trade group.

"Investor sentiment as reflected in the commitment of new money to stock funds was much lower in November than October," said John Collins, a spokesman for ICI.

Money market funds also saw a rush of cash into their coffers, a sign that investors would rather keep more of their assets in cash.

Net cash flow into the funds increased to $56.2 billion in November compared with last month's $26 billion. The percentage of net assets redeemed from stock funds crept up to 27.6 percent in November from the previous 26.4 percent. In November 1999, the percentage redemption was 22.3 percent.

"There was a sharp decline in demand for stock funds" last month, Collins said. He also said that the cash flow into a fund does not necessarily correlate with the fund's performance, because older investors typically invest in funds for long-term retirement goals.

On the positive side, Blue Martini Software rose for a second day, climbing $2.81, or about 27 percent, to $13.31. The stock has gained 90 percent this week.

The e-business software maker was recommended by David Readerman, an Internet strategy analyst with Thomas Weisel Partners, in a Barron's magazine interview.

Of the 18 sectors tracked by CNET Investor, semiconductor equipment makers and computer-aided design/manufacturing companies posted the largest gains, rising about 5 percent. Internet content companies were the only losers of the day, falling about 4percent.

Chip stocks also propped up the markets. The Philadelphia semiconductor index rose 24.77, or 4 percent, to 603.65, led by chip equipment maker KLA-Tencor, which gained $2.88, or 9 percent, to $33.63, and Novellus Systems, which climbed $2.94, or nearly 9 percent, to $36.06.