Blue-Chips Retreat as Fed Talk Fills the Air

And the Nasdaq was up, of all things, even as other indices slipped.
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July's strong jobs report threw cold water on stocks this morning, hauling the

Dow Jones Industrial Average

into negative territory. But most traders were too busy worrying about a potential interest-rate hike later this month to fret about the 60-point drop, and many were relieved the damage wasn't worse.

The downturn "is really not monumental. One would have expected

a drop of 100 to 200 points," said Paul Rich, an equity trader at

BT Brokerage

. "It really underscores an unusually strong market. We are going to

lie around these levels for a while, maybe through August. It all depends on the

Fed

," said Rich.

Indeed, with the Federal Reserve's Aug. 24 meeting looming, trading has been cautious and the general consensus is that the market is in the process of discounting a rate hike. The thumping that stocks have taken in the past week certainly supports the idea.

Amid an overall slump, technology issues were holding steady. The tech-heavy

Nasdaq Composite Index

was up 5.5 to 2571.3 while

The Street.com Internet Sector

was slipping despite a lift from

America Online

(AOL)

, which was up 4%, and

Yahoo!

(YHOO)

, up 2.6%. The

DOT

was down 3.82 to 509.73.

Many market watchers are bracing now for bad news. "I think today was the confirming day for the timing of the rate hike. The

employment numbers confirm everyone's feeling that the Fed will take action on Aug. 24, probably with a 25-basis-point rate hike," said John Eade, director of research at

Argus Research

.

But many think the buck won't stop at the August meeting. Worry about another spike in rates at the Fed's October meeting is already taking hold. "I think the concern will come back up and there could be another move later this fall. The number we saw was strong enough that the door is not closed yet. We need more data," Eade said, referring to the

Consumer Price Index

report to be released Aug. 17.

The Dow was down 64 to 10,729 while the broader

S&P 500

was off 8.3 to 1305. The small-cap

Russell 2000

was down 0.84 to 428.

On the

NYSE

, decliners were beating advancers 1,864 to 894 on volume of 387 million shares, while on the

Nasdaq Stock Market

laggards led leaders 1,871 to 1,632 on 514 millon shares. New lows were at 134 on the Big Board, compared with 30 new highs, while on the Nasdaq there were 29 new highs and 64 new lows.

The benchmark 30-year Treasury was down 1 5/32, its yield at 6.135%.

Friday's Midday Watchlist

By Thomas Lepri
Staff Reporter

(

Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.

)

The most movingest securities Friday were American depository receipts (see below), especially those of Swedish truckmaker

Scania

(SCV.A)

. Scania was up 7 1/16, or 23.4%, to 37 1/4 after rival

Volvo

(VOLVY)

made a bid to acquire the 78.4% of the company it doesn't already own. Volvo -- which was down 2 5/8, or 8.8%, to 27 7/16 on the news -- is offering nearly $39 (315 kronor) in cash for each Scania share or a stock swap of six new Volvo shares for every five Scania shares.

Investor

, Scania's controlling shareholder, has agreed to sell its stake.

Meanwhile,

Boston Scientific

(BSX) - Get Report

-- whose stock is manufactured back here in the good old USA -- was free falling 5 3/16, or 14.2%, to 31 5/16 after it said it will recall its Rotablator RotaLink Advancer and RotaLink Plus rotational atherectomy systems, which, when they work, open constricted blood vessels by drilling away plaque from the vessel walls. Boston Scientific has sold about $60 million worth of those two products in the first half of this year.

Mergers, acquisitions and joint ventures

America Online signed distribution and co-branding agreements for its instant messaging software with Internet service providers

Earthlink

(ELNK)

and

Mindspring

(MSPG)

. Earthlink was up 4 3/8, or 11.8%, to 41 5/8 on the news, while Mindspring was up 2 11/16, or 10.3%, to 28 15/16. AOL was up 3 3/8, or 4%, 87 5/16.

Deutsche Telekom's

(DT) - Get Report

ADRs were off 5/8 to 40 1/8 after it confirmed plans to buy U.K. mobile telephone firm

One2One

for about $11.2 billion. Telekom will also assume about $2.4 billion in One2One debt.

ADRs of

Nokia

(NOK) - Get Report

were off 3/16 to 81 1/4 after the company said it was in talks to sell its

Salcomp

unit, which makes mobile phone battery chargers, as part of its plan to focus on core telecommunications and Internet technologies.

Earnings/revenue reports and previews

NextCard

(NXCD)

was up 3, or 13.3%, to 25 9/16 after last night posting a narrower-than-expected second-quarter loss. The company said it lost 45 cents a share for the quarter, 2 cents thinner than the five-analyst

First Call

consensus.

Sterling Commerce

(SE) - Get Report

was sinking 2 5/8, or 10.8%, to 21 5/8 after it warned last night that its fourth-quarter earnings would fall as much as 5 cents shy of the 16-analyst estimate. The company attributed weaker results to sluggish revenue growth and the delay of several end-of-the-quarter transactions. Today the analysts weighed in:

J. P. Morgan

cut Sterling to long-term buy from buy, and

Credit Suisse First Boston

lowered it to hold from buy.

SCI Systems

(SCI) - Get Report

was dropping 2 7/8, or 5.4%, to 50 9/16 despite posting fourth-quarter earnings of 60 cents a share last night, 3 cents above the 19-analyst estimate and up from the year-ago 54 cents.

SG Cowen

raised the stock to buy from neutral today, but that wasn't helping matters any.

ADRs of U.K. cable firm

Telewest Communications

(TWSTY)

were kerplunking down 2 7/8, or 7%, to 38 3/4 after the company said yesterday that its second-quarter loss had widened 56% because of higher accounting charges and interest payments for acquisitions. Telewest said it expects its losses to peak early next year as it launches its high-speed Internet and multimedia services

Terra Nova

(TNA) - Get Report

was shooting up 3 3/4, or 16.3%, to 26 3/4 after the company said last night that it had received an unsolicited merger offer and retained

Donaldson Lufkin & Jenrette

to help it consider its alternatives. The news came as Terra Nova reported lower-than-expected second-quarter earnings of 68 cents a share, worse than the four-analyst estimate of 71 cents and a penny less than the year-ago 69 cents. The company also said last night that it is in the final stage of talks to acquire a U.S. company.

Unilever's

dual ADRs were falling in New York despite the company's posting an 8% rise in second-quarter pretax profit. Unilever is a joint venture of the Netherlands'

Unilever NV

(UN) - Get Report

and the U.K.'s

Unilever PLC

(UL) - Get Report

-- the Dutch ADRs were lately off 2 1/16 to 71 15/16, while the British ones were down 1 3/16 to 39 1/8. Credit Suisse First Boston reiterated its hold rating on Unilever today.

Offerings and stock actions

Internet Gold

(IGLD) - Get Report

was rising 1 1/4, or 10.4%, to 13 1/4 in its first day of trading, having been priced last night at $12 a share by lead underwriter

Lehman Brothers

.

E-commerce investment group

Internet Capital

(ICGE)

was continuing to tack on points the day after its trading debut, lately up 5 5/8, or 23/1%, to 30 1/16.

Analyst actions

Diversified holding company

Loews

(LTR)

was up 1 13/16 to 72 13/16 after

Merrill Lynch

raised it to near-term buy from neutral.

Natural gas and electricity company

MCN Energy

(MCN) - Get Report

was dropping 5/16 to 18 5/16 after

Deutsche Banc Alex. Brown

cut it to market perform from buy.

Yahoo!

(YHOO)

was advancing 3 5/16, or 2.6%, to 121 5/8 after

Goldman Sachs

raised it to its recommended list from market outperformer. The upgrade comes at a time when Yahoo! is trading at about a 45% discount to its 12-month intraday high of 244, set back on April 6.

Miscellany

Decking products maker

Trex

(TWP)

was banging a gong this morning ahead of its earnings report on Monday. Trex lately was up 2 1/8, or 8.9%, to 26 1/16.