The major stock indexes ended higher after being down most of the day. The late-day buying may have been fueled by bears buying back open short positions ahead of Friday's option expiration.
Semiconductor and some large-cap tech stocks such as Microsoft (MSFT ) rallied, while many networking equipment companies were dragged lower by Ciena Corp. (CIEN ), which issued a disappointing earnings outlook.
On Friday, investors will sift through more earnings news and outlooks from companies such as Dell Computer (DELL ) and Dow component Hewlett-Packard (HWP ), which reported quarterly earnings after the market close today. Dell reported second quarter earnings per share of 16 cents, in line with the consensus estimate. Hewlett-Packard reported third quarter net from continuing operations of $0.11 and actual EPS of $0.05, higher than expected.
Investors had a muted reaction to a mixed batch of economic reports today. Inflation at the consumer level retreated in July and first-time unemployment claims for the most recent week pulled back.
Housing starts were stronger than expected for the month of July, but building permits, an indicator of future building activity, fell 1.8%. The August Philadelphia Fed index declined, reflecting the continuing weakness in manufacturing activity. With reports like the Philly Fed pointing to contiuned economic weakness, the market expects the Federal Reserve to lower borrowing rates again at its policy meeting on Tuesday, Aug. 21.
For most of the day, the focus was on bad news from communications equipment maker Ciena, which said its fiscal third-quarter operating profits doubled as customers bought its next-generation optical gear to help them through the economic slowdown. The company left its forecast for adjusted earnings per share in the 2001 fiscal year unchanged at $0.72 to $0.75 and revenue growth of 95% to 105%, but was not as upbeat about its outlook for 2002.
Among Thursday's other stocks in the news, Brocade Communications (BRCD ), a computer storage network company, said Wednesday after the close that its third-quarter profits dropped 40% due to the economic slowdown. Procter & Gamble (PG ) and United Technologies (UTX ) helped lift the Dow.
The Dow Jones industrial average closed up 46.57 points, or 0.45%, to 10,392.52. The tech-heavy Nasdaq Composite gained 11.40 points, or 0.6%, to 1,930.29. The broader S&P 500 inched up 3.63 points, or 0.31%, to 1,181.65.
U.S. Treasuries closed higher. The sharply lower Philly Fed business sentiment index lit a fuse under shorter-dated issues, which burned until the close. A Treasury buyback also helped sentiment for U.S. bonds.
The Labor Department said the Consumer Price Index (CPI), a key measure of inflation at the retail level, fell 0.3% in July, compared with a rise of 0.2% in June. Excluding volatile energy and food prices, the index rose 0.2% in July. Energy fell 5.6% as gas prices plunged 11% in the month. The core CPI data were in line with expectations and will be good news for the long bond Thursday, notes Standard & Poor's research unit.
Meanwhile, U.S. housing starts were surprisingly strong again, rising 2.8% in July to a 1.672 million unit pace. The home-building market has been a bastion of strength in the economy.
The amount of new unemployment claims fell unexpectedly last week, suggesting that the decline in the labor market may be stabilizing despite ongoing corporate layoffs. Initial jobless claims fell by 8,000 to 380,000 in the week that ended Aug. 11, the Labor Department said Thursday. The four-week moving average of claims also fell, by 9,250 to a five-month low of 370,750. Economists had expected an increase of 10,000 new claims.
European markets were lower amid an increasingly bearish outlook for Euroland stocks. Telecom issues were the worst performers.
In London, the Financial Times-Stock Exchange 100 index fell 71.80 points, or 1.31%, to 5,389.80. Retail sales in Britain rose more than expected, by 0.6% in July, led by spending on clothes and footwear. The data throw water on investors' hopes for an interest rate cut from the Bank of England.
In Germany, the DAX Index dropped 93.52 points, or 1.71%, to 5,361.92. German economic growth ground to a halt in the second quarter, as a slowing global economy sapped demand for exports and forced companies to scale back manufacturing, the country's central bank said.
In France, the CAC 40 closed down 51.35 points, or 1.04%, to 4,882.62.
In Asia, markets ended lower as Wednesday's poor Nasdaq performance and weak technology shares pressured the major indexes there. Japan's Nikkei 225 slid 240.38 points, or 2.04%, to 11,515.02. In Hong Kong, the Hang Seng index lost 309.19 points, or 2.55%, to 11,832.44.
By Amy Tsao in New York