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E*Trade Hardware Trouble Interrupts Service

The online broker calls it an isolated incident; customers disagree.

Updated from 3:30 p.m. EST

Many customers of

E*Trade Group

(EGRP)

were unable to place trades through the online broker's Web site Thursday, and they said that they experienced busy signals and waits of up to an hour and a half when they tried to gain access to their accounts through a live broker.

Investors who tried to trade stocks and options via the E*Trade site met with a response from the company saying: "Our system has indicated that you may be temporarily having difficulty accessing this particular function of our site. Often this type of issue is resolved within a few minutes, so please try again or feel free to call one of our brokers."

With roughly one million online trading accounts, E*Trade is the third-largest online broker behind

Charles Schwab

(SCH)

and

TD Waterhouse

(TWE)

.

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"Some of our customers had problems accessing trading functionality due to hardware problems," said Patrick Di Chiro, E*Trade's head of corporate communications. He said the problem started around 6 a.m. EST. The company thought it had fixed the glitch, but it resurfaced just before major markets opened at 9:29 a.m. EST and was not corrected until about 10 a.m. EST.

Di Chiro added that throughout the site outage, investors were able to place trades through the company's automated touch-tone telephone system and through live brokers. He noted that the problems were not caused by vandalism or hacking.

But some customers said they waited more than an hour before they could speak to a broker.

"This morning, I attempted to sell a stock near the market open because many analysts were indicating that it might be set to fall," said James Nix, a commercial real estate and mortgage broker in Dallas. "After 1 hour 15 minutes on hold, I finally got a broker."

A call to E*Trade's telephone service around noon EST yielded busy signals when both the company's touch-tone trading system and voice broking service were chosen from a menu of options. By around 2 p.m. EST, the numbers were accessible.

While E*Trade said the outage Thursday was an isolated incident, many investors said they had experienced problems with the online broker for several days.

"This has been a trend over the past three days, and it got even worse today," said Paul DiBenedetto, a systems analyst in Sunnyvale, Calif., who trades through E*Trade. "I'm able to get a trade through intermittently, but most of the time I get the message, and service over the phone has been even worse."

There is some speculation that the problem may have been caused by increased market activity related to the initial public offering of pocket computermaker

Palm

(PALM)

.

The outage at E*Trade is similar to a recent episode at rival online broker

Charles Schwab on Feb. 18. Like E*Trade, Schwab said that its system was down for only a half-hour, but traders said they had trouble accessing the system for the entire day.

The outages raise questions about whether online brokers, who all tout their ability to execute trades quickly, have enough technology and employees to deal with high-volume trading days.

"They surely spend a lot on advertising, but they don't seem willing to spend on technology to handle all of the new customers they are trying to lure with the advertising," said DiBenedetto.