Tech gain, blue chip pain on Wall St

NEW YORK (CNN/Money) -- Gains in chips, computer hardware and Internet stocks pushed techs higher both Friday and for the week, while mixed economic data and weakness in aviation kept the blue chips from participating as fully.

The Nasdaq composite rose 16.00 to 1,361.01; for the week it gained 4.2 percent. The Dow Jones industrial average lost 40.08 to close at 8,778.06; but for the week it gained 0.37 percent. The Standard & Poor's 500 index lost 1.48 to end the day at 928.77; for the week it rose 2.21 percent.

You're seeing bad news coming in and the market not really reacting that badly to it. You've got people short covering and really it's a process where I think we've seen the lows. You might retest them, but from here on, I think we're going to go forward and go up," Sarat Sethi, a portfolio manager at Douglas C. Lane & Associates, told CNNfn's Street Sweep.

It was a tumultuous week. Stocks closed little changed Monday after see-sawing sharply throughout the session on US Airways' bankruptcy filing. The news took its toll on fellow airlines and on aerospace and defense companies.

On Tuesday, stocks plunged after the Federal Reserve acknowledged the recent slowdown in the economic recovery but failed to change interest rates, as some had hoped, keeping the overnight bank lending rate steady at 1.75 percent.

But the second half of the week was a different story. Wednesday at 5:30 p.m. ET marked the deadline by which almost 700 CEOs were required to certify their financial statements, and most were able to do so. The move seemed to reassure investors that the period of rampant corporate accounting scandals is starting to pass. Stocks rallied sharply on Wednesday and saw more muted gains Thursday, also benefiting from a multi-decade low in Treasury yields.

On Friday, techs surged higher, led by gains in semiconductors, despite some early weakness in Intel following a brokerage downgrade. The Philadelphia Semiconductor index, or Soxx, gained 5 percent. Blue chips trended lower, failing to find any substantial momentum after some ho-hum economic numbers.

Prudential resumed coverage of chip maker Maxim Integrated Products (MXIM: up $3.09 to $37.19) with a "buy" rating and a $52 price target, and chipmaker Texas Instruments (TXN: up $1.69 to $21.99) reaffirmed its third-quarter guidance, saying it expects sequential growth of about 5 percent.

Morgan Stanley cut its 2002 and 2003 profit estimates for No. 1 chipmaker Intel (INTC: up $0.14 to $18.75), saying that the personal computer market has entered into an extended period of moderating growth. The firm cut its 2002 earnings per share estimate to 55 cents from 59 cents and its 2003 estimate to 80 cents from 95 cents. The firm also lowered its five-year earnings growth forecast and cut its price target. The stock initially traded lower on the news but soon recovered with the rest of the sector.

Also helping techs, late Thursday Dell Computer (DELL: up $0.39 to $27.53) reported earnings per share of 19 cents for the second quarter, in line with estimates and up from 16 cents a year earlier. The company also said it expects higher revenue in its third quarter.

"Tech has bottomed, as has the Nasdaq, so there's been a little rally and it may extend for the next couple of weeks before we retest the lows," said Ulric Weil, technology analyst at Weil and Associates. "But there's no bull market in sight for information technology spending."

Blue chips struggle

Blue chips lagged behind their tech brethren.

Shares of Alcoa (AA: down $0.66 to $24.77) fell after Morgan Stanley cut its 2002 earnings per share estimate for the aluminum maker to $1.08 from $1.15 to reflect lower aluminum price forecasts. Salomon Smith Barney also removed the company from its recommended list.

Sanford Bernstein downgraded Procter & Gamble (PG: down $0.33 to $90.99) and other household products makers to "market perform" from "outperform," saying it is time to shift money out of the sector.

In the financial services sector, Citigroup (C: down $0.94 to $34.90) was taken down after a published report that the company's Salomon Smith Barney unit is under investigation by the National Association of Securities Dealers for its actions regarding initial public offerings.

Dow components Home Depot (HD: down $0.83 to $28.10) and Wal-Mart Stores (HD: down $0.83 to $28.10) both traded down, along with other retailers, following a decline in consumer sentiment, which could impact retail spending.

SBC Communications (SBC: up $0.63 to $28.69) was a notable Dow gainer. The stock rose in a broad telecom push, highlighted by gains in BellSouth (BLS: up $0.60 to $25.78), Nextel (NXTL: up $0.66 to $6.70) and Qwest Communications (Q: up $0.40 to $1.93). Qwest said it may cut up to $1 billion in payments and expenses connected to underperforming units and products.

Component IBM (IBM: up $2.85 to $79.35) also climbed, swept up in the tech momentum.

The initial August reading of the University of Michigan's consumer sentiment index came in a little lower than expected. The index fell to 87.9 from 88.1 in July. Economists were expecting a reading of 89. The number puts a damper on hopes that July's downturn was merely an aberration, rather than a sign of a slowdown in the economic recovery.

In other economic news, July consumer prices rose 0.1 percent after rising 0.1 percent in June. Excluding food and energy prices, the so-called core CPI rose 0.2 percent after rising 0.1 percent in June. Economists surveyed by Briefing.com were expecting a rise of 0.2 percent in both CPI and core CPI. The report seemed to make clear that inflation is not a threat right now.

July housing starts fell to an annual rate of 1.65 million units, a little below the 1.68 million units consensus forecast. Building permits were stronger than expected at 1.7 million units, versus the 1.68 million unit consensus.

Friday was also a "double witching" day in which options on stocks and stock indexes expire, often a time of volatility.

"The sentiment is changing. Airlines are bottoming, the 10-year note yield has bottomed, making it more attractive to be in stocks, and people are feeling more comfortable," said Peter Green, market analyst at MKM Partners.

Treasury prices fell sharply, pushing the 10-year note yield up to 4.32 percent from 4.18 percent Thursday. Earlier in the week, the yield traded below 4.0 percent, an almost 40-year low.

The dollar was a little weaker versus the euro and a little higher versus the yen. Light crude oil futures gained 13 cents to $28.51 a barrel, while gold was a little lower.

Market breadth turned positive. On the New York Stock Exchange, advancers beat decliners almost 9-to-7 as 1.25 billion shares changed hands. On the Nasdaq, winners beat losers by more than 9-to-7 as 1.48 billion shares traded.