Wall St. choppy amid economy gloom


A Merrill Lynch upgrade breathed life into Yahoo! scrip

By Parija Bhatnagar
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- Technology stocks held on to gains Thursday despite a downgrade of the semiconductor sector, but the Dow lost steam as the broader market fell victim to a topsy-turvy trading day on Wall Street amid lackluster economic news.

The Dow Jones industrial average lost 23.10 to 8,670.99 after briefly turning positive in afternoon trading following an earlier 136-point drop. The Nasdaq composite gained 21.39 points to 1,335.77, rebounding from earlier losses and breaking away from two straight session declines.

The Standard & Poor's 500 index slipped 0.07 point to close at 917.80.

Investors took a liking to tech issues despite a UBS downgrade of semiconductor equipment stocks and chip stocks. On the Dow, a Lehman Brothers earnings estimate cut for General Electric pressured the index.

There were no surprises in the second-quarter GDP data, while weekly unemployment numbers came in higher than expected.

Market watchers say investors were staying cautious ahead of Friday's batch of key economic reports on consumer sentiment and manufacturing activity.

Sun Microsystems warning

Investors are very reluctant to hold positions in an environment like this," Marty Cunningham, head of trading with Schwab Capital Markets, told CNNfn's Street Sweep.

"People are anticipating that if the data on consumer sentiment is fairly innocuous, the day could be over at 10:30 a.m. tomorrow morning.

"Those willing to keep their feet in the water could see the same thing at the close that we got today, a lot of reconciliation and everybody looking for something to hold," Cunningham added.

Chicago purchasing managers release data for August Friday. Economists surveyed by Briefing.com expect to see an improvement from the previous month. Also, the University of Michigan releases the final reading on consumer sentiment for the month.

Sun Microsystems (SUNW: down $0.13 to $3.83), the leading suppliers of Unix servers, fell 8 cents to $3.75 in after-hours trading. The company said in its mid-quarter update it sees revenue for its first quarter of fiscal 2003 at the bottom end of its earlier guidance.

Sun also said it believes the spending environment for technology may be worsening.

More concerns for chips

Yahoo! (YHOO: up $1.12 to $10.25) helped boost the Nasdaq composite.

Merrill Lynch upgraded the Internet media company to "neutral" from "sell," although the brokerage house cautioned that it forecasts a cloudy growth outlook for the company due to continued weakness in the online advertising market.

In related news, Japanese Internet firm Softbank said it raised $270 million by selling some of its stake in Yahoo! in a bid to cut debt and generate cash for a broadband venture.

But lingering concerns over the health of the semiconductor sector got a fresh lease on life after UBS Warburg downgraded chip-equipment maker Novellus Systems (NVLS: up $0.11 to $24.29) amid a broader downgrade of the sector.

The brokerage firm said signs of a lackluster economic recovery were taking a toll on market demand and information technology spending in the fourth quarter will disappoint.

Morgan Stanley downgraded Micron Technology (MU: down $0.58 to $17.25), the maker of memory chips, to "underweight" from "equal weight," quoting a challenging pricing environment and weakness in back-to-school PC demand.

"There's been a pare back and pause motion going on in the market. As we move into a holiday weekend, it could be a good thing that we don't get too far ahead of ourselves" said Bryan Piskorowski, market analyst with Prudential Financial.

Late in the session, pharmaceutical firm Bristol-Myers Squibb (BMY: down $0.77 to $24.29) said the Securities and Exchange Commission's probe into the company's dealings with its wholesalers had progressed into a formal investigation.

Lehman cuts GE estimate, GM gains

Among the Dow stocks, Lehman Brothers trimmed its 2003 earnings-per-share estimate for General Electric (GE: down $0.95 to $30.35), saying the current market conditions warrant the action.

However, the firm added that it sees GE's businesses "fundamentally on track."

Also weighing on the blue-chip index was aerospace firm Boeing (BA: down $0.36 to $37.17).

The company rejected a request from federal mediators to resume contract negotiations with the International Association of Machinists, but the union said it is still prepared to put its plans to strike the company at 12:01 AM Monday on hold in hopes of a new round of talks.

J.P. Morgan raised its 2002 earnings estimate for U.S. automaker General Motors (GM: up $0.97 to $48.45), citing strength in sales. The brokerage firm reiterated a "buy" rating on the stock.

Economy fails to inspire

The Commerce Department said its measure of U.S. gross domestic product (GDP) growth in the second quarter was unrevised at an annual rate of 1.1 percent, matching expectations, compared with growth of 5 percent in the first quarter.

Separately, the Labor Department reported new claims for unemployment benefits rose to 403,000 in the week ended August 24 from a revised 395,000 the prior week. Economists, on average, expected 385,000 new claims, according to Briefing.com

"There's been a sense of complacency in the market all week. It's very difficult to read too much into this week's activity given the condition we're in right now. The morning's unemployment number wasn't encouraging. It shows the economic recovery is not very strong," Joe Cangemi, a trader with Francis P. Maglio, told CNNfn's Market Call.