Stocks rebound from dramatic decline on interest rate cut speculation

Posted at 1:51 p.m. PST Friday, Feb. 23, 2001

BY LISA SINGHANIA

AP Business Writer

NEW YORK (AP) -- Speculation about an earlier-than-expected interest rate cut by the Federal Reserve helped technology stocks stage a last-minute comeback Friday, giving the Nasdaq composite index its first positive finish in more than a week.

The moderate gains staunched a dramatic selloff sparked earlier in the session on earnings warnings by Motorola and Sun Microsystems. But analysts cautioned that the upturn might be temporary, noting that corporate profits won't improve anytime soon and more earnings warnings are on the way.

The Nasdaq composite index closed up 17.53 at 2,262.49, a 0.8 percent gain, according to preliminary calculations. The index hasn't been this low in two years, but Friday's finish marked a turnaround from a loss of as much as 88 points during the day.

Blue chips' prospects also improved late in the day, but not enough for a positive finish. The Dow Jones industrial average closed down 86.94 at 10,439.87, a 0.8 percent loss, recovering from a 232-point loss.

The Standard & Poor's 500 index slipped 7.34 to 1,245.48, down 0.6 percent.

All three indexes are down for 2001. The Nasdaq has been the hardest hit, trading more than 55 percent off of its all-time high of 5,048.62, reached last March.

``Investor confidence continues to get shaken to the bone'' by these profit warnings, said Tom Galvin, chief investment officer at CSFB.

The Nasdaq's positive finish marked a surprising end to trading session that started on a sour note.

Investors began selling immediately Friday after Motorola reduced its first-quarter earnings outlook for the second time in two months because of soft demand for its cell phones and computer chips.

The news compounded a warning late Thursday from Sun Microsystems that the weak economic environment would hurt the network server manufacturer's third-quarter results.

Motorola ended the session down $1.04 to $16.25 and Sun Microsystems was unchanged at $20.81 after spending most of the day down.

The announcements sent several other technology stocks reeling. Texas Instruments dropped $2.55, or 8 percent, to $30.15.

The tech losses spilled over to the Dow as well, where IBM tumbled $4.90, or more than 4 percent, to $104, after investment firm Salomon Smith Barney reduced its earnings estimates for the computer maker.

Weakness in financial and pharmaceutical stocks also pulled the blue-chip index lower. Banker J.P. Morgan Chase dropped $1.25 to $47.05 and Johnson & Johnson lost $1.03 to $95.49.

The losses were the latest indication of investors' worries that a better economy, and stronger corporate profits, may be a long ways off.

Analysts say the increasing signs of an economic slowdown -- ranging from economic data to incessant corporate profit warnings -- have made many on Wall Street hesitant to buy stocks.

The Federal Reserve, which has already cut interest rates twice since Jan. 1, is expected to lower rates again at its meeting in late March. Wall Street was awash with speculation Friday that another cut might come sooner.

``We need the Fed and fast. I don't think we can wait until the March meeting,'' said Matt Brown, head of equity management at Wilmington Trust. ``You're not going to get any relief from corporate earnings. The only possible hero here is the Fed.''

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange. Volume came to 1.22 billion shares, compared with 1.34 billion at the same point Thursday.

The Russell 2000 index was virtually unchanged, rising 0.18 to 477.44.

Overseas, Japan's Nikkei stock average rose 1.3 percent. Germany's DAX index closed down 3.2 percent, Britain's FT-SE 100 was off nearly 1.0 percent, and France's CAC-40 dropped 2.4 percent.

-- Swissrose (cellier3@mindpsring.com), February 23, 2001

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-- Swissrose (cellier3@mindspring.com), February 23, 2001.