Blue-Chips Finish Up with Help from Microsoft

Microsoft's reaffirmation of financial guidance gave the Dow a lift, but declines in other big tech names weighed on stocks

Blue-chip stocks finished higher after technoogy bellwhether Microsoft Corp. (MSFT ) said it was comfortable with financial estimates for the current year. However, technology stocks ended in the red on negative comments from French telecommunications equipment maker Alcatel (ALA ) and a downgrade on Motorola Inc. (MOT ).

Software giant and Dow component Microsoft gave blue-chip stocks a late-day lift when it reaffirmed financial guidance for the current fiscal year 2002. The company expects for the fiscal year 2002 revenue of between $28.8 billion and $29.6 billion and that operating income would rise around 8% and that earnings per share would fall in the range of $1.91 to $1.95.

"It's been a very volatile day. But what was pretty clear is that investors were risk averse. Technology continued to be shunned," says Larry Wachtel, market analyst at Prudential Securities. Wachtel notes that chipmaker Intel (INTC ) is due to make its mid-quarter report on Thursday. "They'll probably reafirm depressed results. That doesn't mean anything is sparkling here."

Wachtel expects stocks to be volatile through September -- until the next earnings warning season provides some signs of an economic bottom.

For most of the session, investors focused on bad news from Alcatel, whose comments spurred fears that the telecom industry's problems are far from over. The company is aiming for an operating profit this year, which will be difficult to achieve in current market conditions, said the company's chief executive, Serge Tchuruk.

The profit warning from Alcatel shows that more restructuring is needed in the telecom sector, Ravindra Deo, chief investment officer of Accessor Funds tells S&P's AdvisorInsight. "Consolidation will be painful for individuals, but the market and the economy eventually will be stronger," he says.

Merrill Lynch's downgradeof wireless phone giant Motorola to "neutral" from "accumulate" added pressure to battered technology stocks and provided further evidence that a telecom recovery is not on the horizon. Merrill cited "prolonged" weakness in the company's major markets.

Investors also continued to cast a wary eye on the blockbuster $25 billion deal between Dow component Hewlett-Packard Co. (HWP ) and Compaq Computer Corp. (CPQ ), announced Tuesday. The combined company would have revenues of $87.4 billion, rivaling industry-leader IBM Corp. (IBM ).

Among Wednesday's stocks in the news, Walgreen Co., the No. 1 U.S. drugstore chain, said sales rose 11.6% in August at stores opened for at least a year. Several other retailers posted strong sales for the month of August. Sears, Roebuck and Co. (S ), Kohl's Corp. (KSS ), and women's apparel chain Chico's FAS Inc. (CHS ) reported higher same-store sales, boosted by back-to-school shopping.

The Dow Jones industrial average added 32.80 points, or 0.33%, to 10,030.29. The Nasdaq Composite shed 11.66 points, or 0.66%, to 1,759.12. And the broader S&P 500 lost 1.70 points, or 0.15%, to 1,131.24.

Treasury Market

U.S. Treasuries finished mixed Wednesday. A lack of new economic updates before key payroll data on Friday will limit trading in bonds, notes Standard & Poor's economic research unit. Economists are expecting unemployment to rise to 4.6%, a rise of 0.1%.

In economic data, the U.S. second-quarter non-farm productivity was revised down to a gain of 2.1%, from a 2.5% gain previously. Unit labor costs were revised up, to a gain of 2.7%, from a rise of 2.1%. The data are not far from expectations, following the revisions recently made to second-quarter gross domestic product.

Two retail reports released Wednesday point to weakening consumer spending. The BTM-UBS Warburg retail chain store sales index slipped 0.1% for the week ending Sept. 1, after rising 0.1% the week before. Sales were generally on-to-above plan for retailers. The Redbook chain store sales rose 0.3% for the four weeks ending in August, compared with July. In general, spending among retailers is lukewarm and disappointing, says S&P.

World Markets

European markets finished lower. In London, the Financial Times-Stock Exchange 100 index ended off 63.60 points, or 1.18%, to 5,316.00, amid disappointment that Tuesday's rally in U.S. stock markets fizzled. In France, the CAC 40 finished down 102.42 points, or 2.19%, to 4,571.56. In Germany, the DAX Index fell 160.02 points, or 3.07%, to 5,048.08, as the country's Federal Labor Chief Jagoda said a 2001 goal for 3.7 million jobless might not be met.

Asian markets ended lower. The Nikkei fell 173.80 points, or 1.61%, to 10,598.79. In Hong Kong, the market shed 193.72 points, or 1.74%, to 10,943.14.

By Amy Tsao in New York