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Nasdaq falls with chip fears

Shares in the chip sector continue to drop following a negative analyst report, dragging the tech-heavy Nasdaq down with them.

Shares in the chip sector continued to drop Tuesday following a negative analyst report, dragging the tech-heavy Nasdaq down with them.

The Nasdaq composite index lost 6.47 points to 2,027.79, unable to sustain its brief midday rebound following morning losses. The Dow Jones industrial average gained 57.43 points to 10,458.74.

Chip and chip-equipment makers saw their stocks slide following disappointing news from a Credit Suisse First Boston report. The investment firm lowered its ratings on a slew of semiconductor stocks and dropped estimates for PC unit shipments for this year and next year, citing poor fundamentals and lofty stock prices.

KLA Tencor was one of the hardest hit, down $3.38, or 5.83 percent, to $54.57. CNET's Semiconductor Capital Equipment index was down about 3 percent, and CNET's Semiconductor index was off around 1 percent.

In economic news, a report on productivity showed that the amount of goods and services a worker can create per hour rebounded in the second quarter. The Labor Department's report showed productivity rose at a larger-than-expected 2.5 percent rate, up from a 0.1 rate in the January-through-March quarter. That was the index's best gain in a year, helping to calm doubts that the gains in worker efficiency are dwindling with the economic slump.

In addition, consumer borrowing fell by $1.5 billion in June, its first decline in three years, according to a Federal Reserve report. The result was a surprise to economists, who expected credit to rise by $7.7 billion. The tumble is attributed to less borrowing for cars and other non-revolving loans as harsh economic conditions have discouraged Americans from borrowing.

Networking giant Cisco Systems also weighed on the Nasdaq. The company is expected to lower its long-term growth projections when its reports earnings after Tuesday's bell. Shares were off 28 cents to $19.26.

Covad Communications Group was up 6 cents at 56 cents after it said it expects to voluntarily file for bankruptcy protection by mid-August. The move is part of the high-speed Internet access provider's plan to scratch off $1.4 billion in debt.

Among other heavily traded techs, Microsoft gained 22 cents to $66.35, Oracle was off 22 cents to $17.24, Intel was up 34 cents to $30.62, and Sun Microsystems was off 5 cents to $17.08.

Amazon.com fell 30 cents at $11.60, AOL Time Warner was unchanged at $46, and Yahoo fell 9 cents to $17.30.

Staff and Reuters contributed to this report.

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