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Investors Shift Focus To Growth Stocks

As yields have risen, the big dividend-paying stocks, utilities and telecommunication companies, have fallen.

HOPEFUL SIGNS ON EARNINGS

Another reason investors are starting to take a shine to technology stocks is that their earnings are showing signs of picking up.

Microsoft delivered solid results last month from its Office, software tools and Xbox divisions.

Google, the leader in Internet search, raised prices for ads distributed to smartphones and tablet computers. The company's stock climbed above $900 for the first time May 15.

Even the outlook for Hewlett-Packard is improving. The company's stock surged 17 percent Wednesday after the struggling PC maker reported quarterly earnings that weren't as bad as analysts had been expecting. That encouraged investors to think that HP's turnaround strategy may succeed.

THE CAVEAT

The nascent rally in growth stocks may be short-lived if the economy fails to build on its performance in the first quarter, says Barry Knapp, head of equity strategy at Barclays Capital.

Barclays predicts that U.S. growth will slow to 1.5 percent in the second quarter, from 2.5 percent in the first quarter, as the economy is held back by government spending cuts.

"If it becomes clear that we're growing at that sort of a rate in the second quarter, and we don't see much of a pickup in the third quarter, I don't really see how the cyclical names could continue their current bounce," says Knapp.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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