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Technology stocks tumble

Investors worry about a delay in economic recovery

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NEW YORK — Cautious outlooks from Microsoft and IBM sent technology stocks tumbling Friday as investors worried that an economic recovery might be further delayed. The tech-driven NASDAQ composite index closed out its worst week since the terror attacks.

Analysts said the sharp drop was to be expected given all the buying investors indulged in late last year when they expected business to quickly turn around in 2002.

The tech sector took the brunt of the selling as the NASDAQ fell 55.48, or 2.8 percent, to 1,930.34 and ended the week down 92.12, or 4.6 percent. The last time the NASDAQ had a bigger weekly percentage decline was Sept. 21-28, when it plunged 16 percent following the terror attacks.

The market's other major indexes also posted sharp daily and weekly declines.

The Dow Jones industrial average sank 78.19, or 0.8 percent, to 9,771.85, with IBM and Microsoft its weakest components. For the week, the Dow fell 215.68, or 2.2 percent.

The Standard & Poor's 500 index stumbled 11.30, or 1.0 percent, Friday to 1,127.58. It ended the week down 18.02, or 1.6 percent.

The downturn reflected the market's disappointment with statements from IBM and Microsoft late Thursday in which both companies said they don't know if a recovery has started. Although the high-tech bellwethers beat earnings expectations, that wasn't enough for Wall Street, which had been buying on the assumption the companies would confirm a turnaround in progress.

IBM fell $5.65 to $114.25, while Microsoft tumbled $3.76 to $66.10. The selling spread to other technology issues as well, including Intel, which issued a similarly cloudy forecast earlier this week. The chip maker, also a Dow industrial, fell $1.05 to $33.48.

"I don't think people were expecting lots of positive comments about an economic recovery, but they were hoping for some glimmer of hope, and so far management has not provided that," said John Forelli, portfolio manager for John Hancock Core Value Fund. "So people are taking profits instead of buying stocks."

After two consecutive years of decline on Wall Street, investors aren't willing to take many chances. Such caution has led them to take profits from the market's big fourth-quarter advance, when the Dow rose more than 20 percent from its Sept. 21 low, and the NASDAQ gained nearly 40 percent.

Investors are questioning whether the market's gains might have come too quickly.

"People are gun shy. They know what happened in 2000 and 2001 and are much quicker to take profits," said Richard A. Dickson, a technical analyst for Hilliard Lyons in Louisville, Ky.

A positive report from Sun Microsystems failed to trigger buying. Sun fell 25 cents to $12.12 despite posting a smaller-than-expected loss for its fiscal second quarter and raising its revenue expectations for the third quarter to $3.2 billion from $3.1 billion.

Blue chips experienced widespread weakness, which analysts attributed to the Enron bankruptcy, caused by questionable accounting procedures. Fears that struggling retailer Kmart would also file for bankruptcy protection also weighed on investors.

"It kind of casts a cloud on the whole market," Dickson said.

Among blue chips, J.P. Morgan Chase dropped 94 cents to $35.91, Merck fell 60 cents to $58 and Wal-Mart declined 41 cents to $56.35.

Kmart, trading near a 40-year low, rose 18 cents to $1.74.

Enron has been delisted from the New York Stock Exchange and is selling for pennies a share on the over-the-counter market.

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Consolidated volume totaled 1.60 billion shares, below Thursday's 1.69 billion shares.

The Russell 2000 index, the barometer of smaller company stocks, fell 8.02, or 1.7 percent, to 474.37. The index had a weekly loss of 15.57 or 3.2 percent.

Overseas, Japan's Nikkei stock average gained 1.6 percent. In Europe, Germany's DAX index and Britain's FT-SE 100 each slipped 0.2 percent, and France's CAC-40 fell 0.6 percent.