Data Takes Sting Out of Downgrades

Stocks rose modestly today, as a surprisingly strong rise in U.S. workers' productivity during the spring buoyed Wall Street, but semiconductor stocks fell amid increasing pessimism about a rebound in the depressed industry.

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A surge in productivity in the April-June period, a quarter in which the economy had its weakest performance since 1993, lifted hopes that greater worker efficiency can allow the economy to grow faster without inflation.

"You've started to see some signs in the economic data that things are going to be looking a bit better, but until some of that data starts showing up in company reports, the market is probably going to trade a little listlessly," said Richard Nash, chief investment strategist at Key Asset Management in Cleveland.

But semiconductor and chip-manufacturing equipment stocks fell for the the third straight session. Faring the worst in the group were KLA-Tencor Corp. , which sank 5.8 percent, or $3.38, to $54.57, and Novellus Systems Inc. dropped 4.7 percent, or $2.47, to $49.81.

"Investors are still concerned the economy is too weak," said Guy Truicko, portfolio manager at Unity Management. "Investors are waiting for a catalyst — some sign that the economy has bottomed, and we haven't gotten it yet … There is a tremendous lack of confidence in this market, in this economy, in this Fed."

The Dow Jones industrial average ended up 57.43 points, or 0.55 percent, at 10,458.74, according to the latest data, while the Nasdaq composite index slipped 6.47 points, or 0.32 percent, to 2,027.79. The Standard & Poor's 500 index rose 3.92 points, or 0.33 percent, to 1,204.40.

Firms Continue Cutting Outlooks

CSFB cut its investment rating on a slew of U.S. and international semiconductor chip and chip-production equipment stocks, adding fuel to an already inflamed debate among investors about how long the downturn will last.

"Is it a two- or three- or four-quarter turnaround?" said Keith Gertsen, head of Nasdaq trading for Deutsche Banc Alex. Brown.

Traders also said the time was ripe to sell these stocks after strong gains last week.

CSFB said it now expects personal computer shipments to drop this year, revising downward its previous forecast for flat shipments. CSFB cut its forecast for 2002 PC shipment growth to 10 percent from 17 percent.

The brokerage house cut its rating on the semiconductor capital equipment industry to "market underweight" from "neutral" or "market weight." Semiconductor equipment includes silicon wafer, advanced circuit design and testing machines.

CSFB cut seven stocks in the sector to "hold" from "buy," including the dominant player, Applied Materials, down $2.27 at $46.46, and KLA-Tencor, which dropped $3.55 to $54.40.

It also slashed its ratings on communications chip makers such as Applied Micro Circuit which fell 67 cents to $18.27.

"No one's going to stick their hand up and say, 'Now is the good time to buy.' We need some good news first," said Mike Murphy, head of trading at First Union Securities Inc. in Baltimore.

Surprising Rise in Productivity

Productivity at U.S. businesses posted its best showing in a year. The Labor Department's nonfarm report showed productivity — the amount of goods and services a worker can create per hour — rose at a larger-than-expected 2.5 percent annual rate in the second quarter. That was up substantially from a 0.1 annual pace seen in the January-March quarter.

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