Early Stock Rally Withers Amid Conflicting Signals

Reassuring words from Federal Reserve Chairman Alan Greenspan gave the stock market a lift Wednesday, but the rally fizzled after an analyst lowered earnings estimates for Cisco Systems, prompting a sharp sell-off.

The volatility, which left prices mixed for the day, fit the pattern of recent weeks--stocks advance and then fall back amid conflicting signs of economic recovery and corporate profitability. The market rose strongly Friday and Monday, with the Dow chalking up an aggregate gain of 300 points. Then it dropped Tuesday and couldn’t sustain a rise on Wednesday.

“In a correctional market, there’s a very thin amount of confidence, and that’s why you get these gyrations,” said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons. “Today, it sat at its highs for three hours, then gravity took over.”

The Dow Jones industrial average was up nearly 140 points after Greenspan spoke to Congress, then fell into negative territory before recovering to register a gain of 12.32 points, or 0.1%, to 10,127.58.

Broader stock indicators were mixed. The Standard & Poor’s 500 index eked out a 0.5-point gain, or 0.1%, to 1,109.89, while the Nasdaq composite index--which includes Cisco--was off 14.98 points, or 0.9%, at 1,751.88.

Winners led losers 3 to 2 on the New York Stock Exchange, and were about even on Nasdaq. Trading was active.

Greenspan told Congress he sees increasing signs that the recession is coming to an end, although he cautioned that the recovery would not be robust.

Also Wednesday, the Commerce Department reported that factory orders for durable goods rose more than expected in January, the latest sign that manufacturing might be pulling out of its slowdown.

Investors reacted to the news positively, then began selling after Wachovia Securities lowered its estimate for Cisco’s fiscal third-quarter results to reflect continued cuts in capital spending by telecommunications service providers.

Cisco fell $1.26, or more than 8%, to $14.24.

Other high-tech companies also fell. Emulex dropped $3.48 to $33.52. Sun Microsystems was off 35 cents at $8.66, while Intel fell 13 cents to $29.89. Microsoft fell 16 cents to $58.39 despite being up $1.60 in early trading.

However, the bond market enjoyed its best day in a month as Greenspan’s cautious testimony eased concern that the Fed will raise interest rates anytime soon. The yield on the benchmark 10-year Treasury note tumbled to 4.83% from 4.92% Tuesday, while the two-year T-note yield slid to 2.92% from 3.02%.

Among the day’s highlights:

* Financial stocks rose on the positive economic news. Citigroup was up 44 cents at $44.24, while American Express rose 53 cents to $35.77. Mortgage lender Fannie Mae gained $1.14 to $77.91. The Bloomberg News index of financial services stocks rose almost 1%.

* Biotech company ImClone surged $5.01 to $20.53--a 32% gain--on reports that the Food and Drug Administration might not require the company to make a new clinical trial for its cancer drug Erbitux. The stock had been badly beaten after the FDA declined to even review ImClone’s application for Erbitux in December, saying crucial data were missing.

Bristol-Myers Squibb, which has a deal with ImClone to market Erbitux, also rose, gaining $1.98 to $47.49.

* Clear Channel Communications fell $2.09 to $47 after the major radio broadcaster reported a sharply wider net loss for its fourth quarter due to acquisition related expenses.

*

Market Roundup, C8-9