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Markets slump despite U.S. growth data

News that the economy grew slightly isn't enough to calm investors who fret over the sluggish economy and companies' profits.

The U.S. economy grew at its slowest rate in more than eight years during the second quarter, but didn't shrink, easing fears that the country was headed into a recession.

But that news wasn't enough to calm investors; the Nasdaq composite index fell 21.81 points to 1,843.17, and the Dow Jones industrial average was down 131.13 points to 10,090.90.

The government released a preliminary revision to second-quarter gross domestic product figures, showing growth at a tepid 0.2 percent, below earlier estimates of 0.7 percent.

However, economists had recently been expecting the report to show zero growth or even a decline. The data prompted a burst of buying at the start of the session, but the gains were fleeting as investors stood ready to sell into any rally.

"I think you had the disappointing action yesterday and although the revised GDP number was better than expected, it still indicated a decelerating pace of growth for the economy, so its staying power as a bullish catalyst is limited," said Pat O'Hare, stock market analyst at Briefing.com.

But there may be hope. The U.S. economy will likely strengthen and return to full growth potential in the next year, Commerce Secretary Don Evans said on Wednesday.

"I'm optimistic; there are some good signs out there," Evans told a news conference to discuss the latest figures on second-quarter growth. He noted that the GDP report showed inventory levels were being reduced--a welcome sign--and said housing sales and construction and retail sales were continuing to provide support for the struggling economy.

In other news, Computer Associates fell 71 cents to $32 on the news that the current management had defeated an attempt by Texas financier Sam Wyly to replace part of the board.

All 10 members of the current board were re-elected, garnering at least 75 percent of the vote and assuring that founder Charles Wang will continue as chairman. Wyly and his group Ranger Governance launched a proxy fight in June to take over the board, accusing the current members of mistreating customers and employees.

Gateway rose 19 cents at $8.79 a day after the company announced it would lay off up to 25 percent of its work force, pull out of several Asian markets and post a third-quarter loss. Analysts were left to determine whether these cutbacks would strengthen the company in the long term.

Shares of Cypress Semiconductor slid $1.33 at $22.01 after Lehman Brothers reduced its estimates for the third quarter, saying the company saw weak bookings and billings in August. Lehman now thinks revenues for the quarter will likely be down about 5 percent compared with the company forecast of flat to slightly higher revenues.

Excite@Home was up 13 cents at 52 cents on the news that the embattled high-speed Web service may have found someone to bail it out of its financial woes. Former White House Chief of Staff Mack McLarty is reportedly interested in investing in the company, which is apparently on the verge of bankruptcy. According to published reports, McLarty and his consulting firm Kissinger McLarty Associates have held talks with Excite@Home, although a formal offer has not yet been made.

Sun Microsystems fell 13 cents at $13.43 ahead of today's midquarter conference call. Yesterday, Goldman Sachs analyst Laura Conigliaro trimmed estimates for the company's earnings, saying "demand improvements are still being frustrated by the macroeconomic environment."

Specialty chipmaker Altera is also scheduled to give a midquarter update today. Shares slipped $1.91 at $28.05 by midday; the company is expected to reiterate its outlook for the upcoming quarter. Microsoft fell 49 cents at $60.25 after the new federal judge presiding over the antitrust case against the company told both sides to file briefs stating the remaining issues in the case by Sept. 14.

Among other heavily traded tech issues, Intel slipped 41 cents at $28.10, Lucent Technologies fell 43 cent to $7.17, Oracle fell 66 cents at $13.35, and Cisco Systems lost 1 cent at $17.08.

Amazon.com was off 78 cents at $9.19, AOL Time Warner fell $2.20 at $38.50, and Yahoo lost 86 cents at $12.14.

Staff and Reuters contributed to this report.