Friday October 6 5:46 PM ET

Stocks Hit Lowest Point Since May By Haitham Haddadin

NEW YORK (Reuters) - U.S. stocks tanked on Friday, with key market gauges closing at their lower levels since May, after government data showing the tightest labor market in 30 years reignited fears that the Federal Reserve's drive to raise interest rates may not be over.

A fresh batch of warnings from companies that profits would lag estimates also spooked investors, who fear a combination of high interest rates, firm oil prices and a weak euro could eat into Corporate America's bottom line. The technology-laced Nasdaq Composite Index (^IXIC - news) fell 111.09 points, or 3.20 percent, to finish at 3,361.01, its lowest close since late May. The Philadelphia Stock Exchange's Semiconductor Index (^SOXX - news) tumbled almost 4 percent to a low unseen in more than eight months.

Besides semiconductors, Internet and telecom shares also led the decline that hit most of the market's high-tech heavyweights and put the index down 8.5 percent for the week.

The blue-chip Dow Jones industrial average (^DJI - news) slid 128.38 points, or 1.20 percent, to end at 10,596.54, a closing level unseen since late July.

The broader Standard & Poor's 500 Index (^SPX - news) fell 27.29 points, or 1.90 percent, to 1,408.99, based on the latest available figures. A decline in financial stocks helped push the S&P 500 to its lowest point since late May.

``The market was expecting the Fed to lower rates (down the road) but that quickly got snapped out of the market,'' said Patrick Adams, president and portfolio manager at Choice Funds in Colorado.

The damper came from government data issued early Friday showing the U.S. unemployment rate declined to 3.9 percent in September -- the lowest in 30 years, confounding Wall Street's expectations that it would remain at the August rate of 4.1 percent, Adams said.

The Federal Reserve, which closely watches the U.S. labor market for signs of wage inflation, left rates unchanged, as expected, on Tuesday when its policy-making committee met. But the U.S. central bank also warned it was still on inflation watch, citing high energy prices and the tight labor market as particularly worrisome. The Fed has increased interest rates six times since June 1999 -- a tightening of credit that ultimately is expected to eat into companies' profits.

``This market is treacherous. You are seeing indiscriminate selling,'' said Barry Hyman, senior market strategist at Weatherly Securities, pointing to the extremely negative market breadth.

About 29 shares fell for every 11 that rose on the Nasdaq, while the ratio favored the losers 20 to 9 on the New York Stock Exchange.

Among the 30 Dow components, the hardest hit included financial and retailing stocks, which are sensitive to interest-rate moves. American Express Co. (NYSE:AXP - news) fell $3 to $58 and Citigroup (NYSE:C - news) lost $2-11/16 to $53-7/16. Home Depot (NYSE:HD - news), the home improvement retailer, dropped $2-11/16 to $51-1/16.

Analysts also cited rumors that one or more Wall Street firms had taken large junk bond trading losses and that may be behind the declines seen in the shares of other brokerages as well; that included Morgan Stanley Dean Witter (NYSE:MWD - news), which fell $7-7/8, or more than 8 percent, to $84-1/16.

Morgan Stanley sources denied the rumor, saying its junk bond business has been profitable in the fourth quarter, which began Sept. 1.

``For those thinking it was a given that interest rates were stabilizing ... clearly that possibility's been squelched,'' said Lauren Smith, an analyst at Keefe Bruyette & Woods, noting the steep decline in the unemployment rate.

``The confluence of both events is just whacking the financials,'' Smith said of the trading-loss rumors and the fear of higher rates. Early in Friday's session, the major market indexes gained when they attempted to shrug off Thursday's downslide after computer giant Dell Computer Corp. (NasdaqNM:DELL - news) warned of weak quarterly sales. Dell's warning came after Wednesday's closing bell and wreaked havoc with tech stocks around the world.

But those advances quickly unraveled. After Thursday's market close, more companies warned that profits or sales would miss forecasts. Those included statements by home improvement retailer Lowe's Cos. Inc.(NYSE:LOW - news), which shed $1-1/16 to $40-13/16, and semiconductor equipment maker Veeco Instruments Inc. (NasdaqNM:VECO - news), which plunged more than 34 percent, down $34-31/32 to $67-9/16.

``Veeco pre-announced earnings and that spooked the market a little,'' Adams said. ``There are general concerns lingering out there about earnings and the (weak) euro versus the dollar and the high oil prices.''

Another warning came from Web consulting firm Razorfish Inc. (NasdaqNM:RAZF - news), which fell almost 43 percent, off $3-3/4 to $5.

The market is reeling from a rash of gloomy trading sessions after recent warnings of soft revenues and earnings from computing industry giants like Dell, Intel Corp. (NasdaqNM:INTC - news) and Apple Computer Inc. (NasdaqNM:AAPL - news).

Intel, which was Nasdaq's most actively traded share, fell $1-1/16 to $39-15/16. Leading losses in late trade were Internet titan Yahoo Inc (NYSE:YHOO - news), off $3-7/16 to $81-1/4, Web infrastructure firm Juniper Networks (NasdaqNM:JNPR - news), down $8-3/16 to $189-3/4, and Qualcomm (NasdaqNM:QCOM - news), down $5-1/16 to $77-13/16.

The business-to-business sector got hammered. Vertical Net (NasdaqNM:VERT - news) fell nearly 24 percent, down $6-13/16 to $21-3/4. VeriSign (NasdaqNM:VRSN - news) lost $5-1/4 to $188-1/16.

Los Angeles-based brokerage Wedbush Morgan Securities said on Friday it downgraded Vertical Net and cut its price target by $20 to $30, adding that a phone survey of the largest customers of Vertical Net's ecommerce centers showed ``very troubling'' customer dissatisfaction.

``You are getting a lot of fear built into this market,'' said Paul Cox, manager of the Commerce Mid-Cap Fund at Commerce Bank. ``There is no bottom in a lot of these technology stocks. They just want them out of the portfolios and they are just selling them.''

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-- Carl Jenkins (Somewherepress@aol.com), October 06, 2000