Markets: Tech Stocks Hold Gains, Eyes on Fed

N E W  Y O R K, June 26, 2001 -- Stocks ended the session slightly lower, though tech stocks ticked higher, as the market held its breath while the Federal Reserve meets to consider aninterest-rate cut, and Merrill Lynch stunnedinvestors with a profit warning.

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The market had spent much of the morning in negativeterritory after a profit warning from top brokerage house giantMerrill Lynch weighed on Wall Street's mood,but its losses began to evaporate past midday.

The broad Standard & Poor's 500 slipped 1.87 points, or 0.15 percent, to 1,216.73, while the Dow Jones industrial average fell 32.14 points, or 0.31 percent, to 10,472.08.

The technology-laden Nasdaq composite index rose 13.50 points, or 0.66percent, to 2,064.37.

Watching the Fed

"There's a lot of optimism spreading that the Fed is clearlygoing to cut interest rates 50 basis points, because there isrelative unanimity that the fundamental backdrop is notimproving," said Ned Riley, chief investment strategist atState Street global advisors.

But Riley cautioned that the rally was tentative: "Someonecould sneeze and it all could disappear."

The Fed began its two-part meeting on interest rates onTuesday. Wall Street is betting the central bank will engineerat least a quarter-percentage point cut, but some investors arehoping for a heftier half-point reduction when the meeting endson Wednesday afternoon.

Today’s Losers

Merrill, the No. 1 U.S. brokerage, said its second-quarterearnings would fall as much as 37 percent below Wall Streetestimates because of the weak stock market. Merrill slumped11.35 percent, or $7.54, to $58.91, a low unseen since thesecond week of April.

"Until we get past these (corporate) confessions, there isno catalyst to spark investors. It's a matter of slogging yourway through," said Larry Wachtel, a market analyst atPrudential Securities. "There is nothing around that's going tochange the day-to-day psychology. The psychology is defensive,the psychology is 'show me' — show me something that is goingto change the pattern around."

Goldman Sachs also dampened investors' mood early in thesession after it lowered its estimates on more than 30technology stocks, citing current business weakness andexpectations that the recovery, when it comes, will be moremoderate.

While Honeywell rose, General Electric Co. fell$1.13 to $49.12. The European Union competition commissionersaid he had the backing of EU governments for his proposal toblock the planned merger between the two Dow heavyweights.

Communications chip maker Applied Micro Circuits Corp. also trimmed an early decline to gain 47 cents to $14.67. The company changed its quarterly outlook to apro-forma loss from a pro-forma profit because of excessinventory among customers.

The Philadelphia Stock Exchange semiconductor indexalso staked it claim in positive territory and rose 0.8percent. The semiconductor industry has been mired in what manybelieve will be its worst-ever slump.

Economic Data Suggests Rebound

In the economic news, a leading barometer of U.S. consumerconfidence rose for a second month in June after a rebound inMay as Americans became increasingly optimistic about aneconomic recovery later this year. The Conference Board saidits index of consumer attitudes rose to 117.9 in June from anupwardly-revised 116.1 in May.

Sales of new single-family homes edged upward in May,posting their strongest sales rate since March, the U.S.Commerce Department said, underscoring the housing sector'sresilience in the face of a slowing economy.

U.S. orders for costly big-ticket items rose last month onsolid gains in orders for cars, planes and semiconductors, thegovernment said. Durable goods orders increased 2.9 percent inMay to $188.55 billion following a 5.5 percent drop in April,the Commerce Department said.

Excluding the volatile transportation sector, orders fordurable goods — which include items like refrigerators andairplanes meant to last for several years — rose 2.7 percentlast month.

The Associated Press and Reuters contributed to this report-->