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Date Posted: 21:20:45 12/18/00 Mon
Author: x
Author Host/IP: ip3.chicago35.il.pub-ip.psi.net / 38.33.43.3
Subject: x

Monday December 18, 2000

Blue Chips Up on Fed Hopes, Techs Fall

By Haitham Haddadin

NEW YORK (Reuters) - Blue chips ended sharply higher on Monday as Wall Street geared up for a key meeting of the U.S. Federal Reserve, which is expected to signal that interest rate cuts may be forthcoming to stem further slowing of the economy.

But technology stocks fell after an early rally lost steam, with investors still jittery over reduced profits in the once high-flying sector. Network computer company Sun Microsystems Inc. (NasdaqNM:SUNW - news) and Internet gear maker Cisco Systems Inc. (NasdaqNM:CSCO - news) led the fall, reversing the Nasdaq market's early jump of more than 2 percent.

Wall Street believes that inflation-fighting Fed Chairman Alan Greenspan (news - web sites) will say he is more worried about a softening economy than nascent inflation at the Fed's policy-making meeting on Tuesday. That will clear the path for interest-rate cuts as a barrage of profit warnings batters the stock market.

``I don't know if the Fed will actually lower rates tomorrow, but I think at least the bias will go to neutral,'' said Michelle Clayman, chief investment officer at New Amsterdam Partners, which oversees $1.1 billion. ``That is what is largely driving things in the market today.''

The blue-chip Dow Jones industrial average (^DJI - news) ended with a big gain of 210.46 points, or 2.02 percent, at 10,645.42. The rally was broad, led by interest-rate sensitive financials like J.P Morgan & Co. Inc. (NYSE:JPM - news), but also included retailers, basic materials, energy and conglomerates.

Index-arbitrage trading curbs were triggered after the Dow rose more than 210 points.

By contrast, the Nasdaq Composite Index (^IXIC - news) closed off 28.74 points, or 1.08 percent, at 2,624.53 after losing 2 percent late in the day.

Among the broader market measures, Standard & Poor's 500 Index (^SPX - news) rose 10.59 points, or 0.81 percent, at 1,322.74.

``The Dow is up sharply on hopes that the Fed may soon move to a neutral stance or cut interest rates,'' said Alan Ackerman, market strategist at Fahnestock & Co.

Investors are more willing to bet on value ``Old Economy'' stocks rather than growth stocks like technology, as a slowing economy makes it more likely to see further earnings erosion for high-tech companies, Ackerman said.

Cuts in interest rates take up to nine months to filter through the economy to benefit the corporate bottom line, so the prospects for the wobbly technology sector, where many stocks are still deemed to be too pricey, look less certain, analysts say.

Among the Dow's financial components, J.P Morgan & Co. Inc. surged $6-5/8 to $166-5/8, and American Express Co. (NYSE:AXP - news) rose $2-1/8 to $56-3/

A Wall Street Journal article on Monday flagged the risk that the central bank will more explicitly warn that it is more worried about a severe slowdown in growth, or perhaps even cut borrowing costs on Tuesday.

Citing unnamed ``Fed insiders,'' the newspaper said the central bank was weighing quicker steps than financial markets now anticipate, but noted that there was not yet a consensus for more aggressive action.

The Fed raised rates six times since June 1999 to slow a white-hot economy to a pace less likely to spur inflation.

Among the Nasdaq heavyweights, Sun Microsystems lost $1-7/8 at $28-9/16 after Prudential Securities cut its investment rating on the stock, citing confirmation from several suppliers that demand for the company's business computers, is beginning to slow.

Cisco, the world's No. 1 maker of gear that powers the Internet, finished with a whopping loss of $5-15/64 at $42-15/16, after sliding to its lowest level in more than a year at $42-5/8 earlier in the session. It was Nasdaq's most active stock.

Software giant Microsoft Corp. (NasdaqNM:MSFT - news) shed $1-3/8 to $47-13/16. The Dow component and Nasdaq heavyweight fell on Friday after warning that a global slowdown, lower personal computer sales and less corporate spending would dent earnings and revenues.

``It's more of the same ... lower earnings expectations,'' said Barry Berman, head of Nasdaq trading at Robert W. Baird & Co. in Milwaukee, commenting on the wobbly tech sector.

But among the bright spots on Nasdaq, Oracle Corp. (NasdaqNM:ORCL - news) jumped $3-7/16 to $32, adding to Friday's gains after the No. 2 software maker posted results that beat estimates.

Other gainers included biotech giant Amgen (NasdaqNM:AMGN - news), up $3-7/8 at $63-13/16, and wireless technology company Qualcomm Inc. (NasdaqNM:QCOM - news), up $5-7/8 at $85-7/16.

Media conglomerate Time Warner Inc. (NYSE:TWX - news) dropped $9.47 to $63.25, and merger partner America Online (NYSE:AOL - news) fell $6.72 to $42.24, and was the most actively traded issue on the Big Board. Time Warner said it was cutting its growth estimate for 2000 due to weaker cable network advertising revenue, weaker music sales and disappointing box office sales.

Aetna Inc. (NYSE:AET - news), the No. 1 U.S. health insurer, rallied $3-13/16 to $36-13/16 after saying its plans to reduce its workforce by 13 percent to cut costs and boost profits.

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