Investors Cash In Blue-Chips

Updated from 3:59 p.m. EST

The Dow ended lower Tuesday after spending almost the entire session in negative territory as investors took profits from the blue-chip average after two days of gains.

The Nasdaq gained a little ground thanks in part to analysts' positive comments on Intel (INTC Quote), upbeat guidance from Texas Insruments (TXN Quote) and another encouraging piece of economic data.

The Dow Jones Industrial Average lost 153.41 points, or 1.5%, to 10,433.41, while the S&P 500 fell 7.70 points, or 0.7%, to 1146.14. The Nasdaq tacked on 6.98 points, or 0.4%, to 1866.30.

The Institute for Supply Management's latest nonmanufacturing business index beat expectations, showing a reading of 58.7 in February, up from 49.6 in January. Buyers briefly seemed energized by the report, but stocks quickly gave back their gains. Analysts were expecting a number around 51. Last week, the ISM, formerly the National Association of Supply Management, said its factory index rose above 50, which indicates expansion in the manufacturing sector, for the first time in 19 months.

Several items were lifting the chip sector. Morgan Stanley semiconductor analyst Mark Edelstone issued a positive research note on chip heavyweight Intel, raising his rating to strong buy from outperform. The stock traded up 2.6% to $32.67. Also in the chip sector, Texas Instruments reaffirmed its first-quarter outlook after the close Monday. The company said semiconductor orders it received in the first two months of the quarter were strong compared with the previous quarter. The stock was unchanged at $33.99.

Separately, the Semiconductor Industry Association said worldwide semiconductor sales decreased 1.7% in January from December and 39.8% compared with the same month a year ago. The Philadelphia Stock Exchange Semiconductor Index ended up 2.2%.

The world's second-largest automobile manufacturer, Ford (F Quote), announced that it is on track with its restructuring efforts after suffering a dismal year that was marred by the Firestone tire crisis and costly car recalls. The company expects a ramp-up in sales at its Ford Europe division to lead the company back to profitability in 2002. Shares of Ford gave up 2.7% to $15.74.

Energy companies Calpine (CPN Quote) and Williams Companies(WMB Quote) made strides, advancing 16.4% and 15%, respectively.

Merrill Lynch weighed in on Gap (GPS Quote), upgrading the clothes seller to a strong buy from neutral, citing increased confidence that sales have bottomed and that a rebound could come as early as the fall 2002. Merrill raised its 2002 and 2003 earnings and revenue estimates and maintained a price target of $18. Shares gained 3.9% at $12.86.

Several retailers posted earnings Tuesday, and most of the results were in line with estimates or a little better than expected. Office supply retailer Staples (SPLS Quote) reported a 45% increase in fourth-quarter earnings on strong results from strategic initiatives launched in late 2001. Excluding special charges, net income for the quarter was $136 million, or 29 cents a share, ahead of the consensus estimate of 26 cents. The company raised its outlook for full-year 2002 to a range of 76 cents to 80 cents a share, as compared to the consensus of 76 cents. The company's stock shed 31 cents, or 1.6%, to $19.69.

Meanwhile, competitor OfficeMax (OMX Quote) lost 12 cents a share, excluding items, in the latest quarter, but the result matched estimates. The company said it expects to return to profitability by the end of the next fiscal year, and its shares were up 14.5% to $5.06.

Wholesale retailer Costco (COST Quote) posted second-quarter earnings of $192.6 million, or 41 cents a share, in line with analysts' expectations. Sales for the quarter rose to $9.21 billion from $8.16 billion in the year-ago quarter. February same-store sales rose 8%. BJ's Wholesale (BJ Quote) also met Wall Street forecasts, reporting a fourth-quarter net profit of 77 cents a share. Costco lost 4.7% at $39.06, while BJ's tacked on 1.4% to $42.49.

Airlines came under pressure after UBS Warburg downgraded three of the largest U.S. carriers, with UAL (UAL Quote), AMR (AMR Quote) and Delta (DAL Quote) all falling more than 5%.

Treasuries were mainly lower, but around 4 p.m. EST, the 30-year bond was climbing 1/32 to 98 7/32. The 10-year Treasury note was losing 6/32 to 98 28/32, yielding 5.02%.

Overseas, stocks were mostly lower with London's FTSE 100 down 0.5% at 5214 and Germany's Xetra Dax off 0.3% at 5229. Japan's Nikkei 225 fell 0.9% to close at 11,348, and Hong Kong's Hang Seng rose 2.6% to close at 10,986.