Stocks Cooling in New York Even as Thaw Sets In in China

Taiwan stocks rallied as President Lee backed off his 'one China' remarks.
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Disappointment over what

Microsoft

(MSFT) - Get Report

had to say in its postearnings conference call is seeping into the broader market this morning.

It's not that there was anything wrong with the company's fourth-quarter numbers -- they came in better than expected. Nor did the company's warnings about how business in the future may not be as good as it's been in the past seem anything more than the usual boilerplate. But the company didn't say what investors wanted it to say -- that it would issue a tracking stock for its Internet businesses -- something that a Friday article in

The Wall Street Journal

speculated the company would do. Helped along by options investors keen to see the company go out well on an expiration Friday, Microsoft added 5.4%.

"People were saying things like after

AOL

(AOL)

, it was going to be the next biggest Internet stock," said Dan Mathisson, head stock trader at

D.E. Shaw Securities

.

Mathisson also said that Microsoft is suffering from overinflated whisper numbers -- something that's hurting the other two big companies to report last night,

Lucent

(LU)

and

IBM

(IBM) - Get Report

.

"All of them reported numbers that look pretty good, but the whisper numbers had climbed so high in the last few days that we're seeing all of them get hit," he said. Together, the three stocks represent about 8.5% of the

S&P 500

.

At 9 a.m. EDT, the S&P 500 futures were down 7.2, about 6 below fair value.

Treasuries were lower, partly on strength in the euro and yen and partly on an easing of tensions between China and Taiwan.

Speaking in Taipei Tuesday evening, Taiwanese President

Lee Teng Hui

said that "only after we have democratic reunification will there be the possibility of one China." That may sound tough, but it's a step back from the outright renunciation of the "one China" policy that Lee suggested in a speech last week, starting the contretemps.

The 30-year was down 12/32 to 90 19/32, yielding 5.93%.

Sensing that Sino-Taiwanese relations were on the mend, Taiwan's stock market put on a huge rally. The

Taiwan Stock Exchange Weighted-Price

index added 419.96, or 5.7%, to 7806.85. Over the past week, it had lost 14%.

The rally in Taiwan helped lift Hong Kong stocks. The

Hang Seng

added 153.27, or 1.1%, to 13,600.40.

Tokyo's stock market was closed for a holiday.

Frankfurt stocks were weighed down by yesterday's weakness on Wall Street, the rebound in the euro and a tumble in

SAP

(SAP) - Get Report

. The German software giant was down 2.4% after reporting weak first-half revenue and earnings. The

Xetra Dax

was off 66.08, or 1.2%, to 5558.66.

Paris'

CAC

was down 41.27 to 4577.48.

London stocks were lower, with banks leading the decline. The

FTSE

was down 46 to 6437.7.

Reed International

, the Anglo half of Anglo-Dutch publishing giant

Reed Elsevier

, was up 8.24% on word that the group (finally) got itself a CEO.

Tuesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

After the close, Microsoft posted earnings of 40 cents a share in the quarter ended June 30, 4 cents better than the

First Call

26-analyst estimate of 36 cents and up from the year-ago 25 cents, but warned of a revenue slowdown for fiscal 2000.

TheStreet.com

wrote about the earnings report

last night.

Also after the close, IBM posted second-quarter earnings of 91 cents a share, topping the First Call 21-analyst prediction of 88 cents and the year-ago 75 cents.

Credit Suisse First Boston

raised its price target on IBM to 155 and reiterated its buy rating on the stock.

General Motors

(GM) - Get Report

posted second-quarter earnings of $2.66 a share, beating the First Call 15-analyst estimate of $2.56 and up from the year-ago 40 cents.

Earnings/revenue reports and previews

(Earnings estimates are from First Call.)

Ameritech

(AIT) - Get Report

posted second-quarter earnings of 76 cents a share, excluding one-time items, beating the 17-analyst estimate of 72 cents and up from the year-ago 63 cents.

DLJdirect

(DIR)

posted pro-forma earnings of 5 cents a share, beating the three-analyst estimate of a loss of a penny and better than year-ago earnings of 1 cent.

Donaldson Lufkin & Jenrette

(DLJ)

reported second-quarter earnings of $1.14 a share, beating the eight-analyst estimate of 84 cents and up from the year-ago $1.05.

Johnson & Johnson

(JNJ) - Get Report

reported second-quarter earnings of 84 cents a share, topping the 22-analyst estimate of 82 cents and up from the year-ago 74 cents.

Lucent posted third-quarter earnings of 26 cents a share, excluding charges, better than the 27-analyst prediction of 23 cents and up from the year-ago 17 cents, which excludes charges.

SAP, the German software company, said net income in the second quarter fell 7% to 142 million euros, down from the year-ago 152 million euros, while income before taxes fell 7% to 248 million euros, down from the year-ago 268 million.

SBC Communications

(SBC)

posted second-quarter earnings of 59 cents a share, beating the 21-analyst estimate by a penny and up from the year-ago 51 cents.

Southwest Airlines

(LUV) - Get Report

posted second-quarter earnings of 29 cents a share, a penny shy of the 14-analyst estimate and up from the year-ago 25 cents.

Texas Instruments

(TXN) - Get Report

reported second-quarter operating earnings of 92 cents a share, beating the 21-analyst estimate of 86 cents.

Tyco International

(TYC)

reported earnings of 84 cents a share, better than the 12-analyst estimate of 79 cents and up from the year-ago 49 cents.

Mergers, acquisitions and joint ventures

Lycos

(LCOS)

has formed a $70 million venture capital fund with partners that include Paul Allen's

Vulcan Ventures

. The venture capital fund will be called

Lycos Ventures

. Allen, of course, is co-founder of Microsoft.

Analyst actions

Goldman Sachs

downgraded

ISS Group

(ISSX)

to market outperform from recommended list. Goldman cited the stock's recent run up as ISS Group moves into the "seasonally slower" third quarter for the downgrade.

DLJ upgraded

Continental Airlines

(CAL) - Get Report

to buy from market perform.