Bonds Lead Stocks Out of Morning Stupor

The Nasdaq is in record territory and banks are holding their own despite challenges.
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A somewhat tentative session firmed up a bit by midday. A softer-than-expected core

Producer Price Index

and a surging bond market had major proxies sitting squarely in positive territory, with tech gauges leading again.

Bumped up by higher energy prices, the headline PPI gained 0.5% in August, surpassing the 0.3% increase forecast by economists polled by

Reuters

. But the core rate, which excludes food and energy costs, fell unexpectedly by 0.1%. Economists had been expecting a 0.1% gain.

The market focused on the core number. Stocks ran higher at the open, and after showing signs of weakening in midmorning trading, finally took the bond market's enthusiasm as confirmation that the first course was the wiser.

The 30-year Treasury was lately up 31/32 to 101 11/32, its yield falling to 6.03%.

At midday, the

Nasdaq Composite Index

was up 29.18, or 1%, to 2881.20 and on pace to establish a new record.

Led by

American Express

(AXP) - Get Report

-- lately up 2% -- the

Dow Jones Industrial Average

was up 32.93, or 0.3%, to 11,112.33. The

S&P 500

was up 7.55, or 0.6%, to 1355.21. The

Russell 2000

had advanced 1.95, or 0.5%, to 439.72, while

TheStreet.com Internet Sector

index was up 15.75, or 2.6%, to 627.51.

"We still have a pretty firm undertone here on the market," said Lou Todd, head of equities trading at

J.C. Bradford

. "Despite the wall of worries being built for it, the market's climbing well."

The fact that the market is rallying so well on what's generally considered to be a clear second-fiddle to the

Consumer Price Index

in terms of

Federal Reserve

policy is testament to the market's need for confirmation inflationary pressures are under control. Sure, a

Reuters

poll taken after last Friday's weak jobs report shows 23 of 30 primary dealers of government debt are confident the Fed won't touch interest rates for the rest of the year. But others aren't so sure.

"Right now the market has no idea on the Fed," said Tony Dwyer, chief market strategist at

Ladenburg Thalmann

. Stocks are laboring under "a combination of inflation fears, interest rate fears, earnings fears, the declining dollar and high valuations," he continued.

"High valuations can be ignored in a low inflation environment. We're not certain about inflation right now, so we're at a key inflection point."

The vicissitudes of the financial sector today illustrate that uncertainty nicely.

"I expected the financials to be a lot stronger," said Dwyer, and he wasn't the only one. After shedding 11.2% since Aug. 24 amid interest rate and currency fears, a soft core PPI and a

Bank of Japan

intervention seemed just what the sector needed to rebound.

Not necessarily. After surging at the opening bell, the big banks found themselves tarred by the brushes of two brokerage houses that cut earnings estimates on

Chase Manhattan

(CMB)

(see below). By midmorning, financials had turned tail, following Chase, lately down about 1%, into the red.

Moreover, any upside support the banks may have gotten from the BOJ's intervention overnight was threatened by the dollar's fading strength. The greenback was lately quoted at 108.87 yen after trading above 110 in the immediate reaction to the intervention.

However, the persistence of the bond market's rally had turned things around for the financial sector. The

Philadelphia Stock Exchange/KBW Bank Index

was back in positive territory, up 0.9% to 783.56 after trading as low as 772.94.

Depending on how the Chase story develops, that sector's weakness may end up weighing on the broader market somewhere down the road. "These aren't mom and pop banks," said Pete Boockvar, equity strategist at

Miller Tabak

. "These are major, major banking companies, so it makes people pause somewhat."

In other sector news, tech continued to outperform, with the

Morgan Stanley High-Tech-35

up 1.3%. Profit taking in oil stocks had the

American Stock Exchange Oil & Gas Index

down fractionally.

Volume was solid as 462.1 million shares had traded on the

New York Stock Exchange

, while 630.2 million shares changed hands on the

Nasdaq Stock Market

. Activity, not to mention long positions, may drop off a bit later in the day, with people leaving work early ahead of Rosh Hashana, the Jewish new year, which begins at sundown.

Breadth was positive. Advancers were topping decliners 1,487 to 1,194 on the NYSE, where there were 53 new 52-week highs against 78 new lows. In Nasdaq action, advancers were beating decliners 1,911 to 1,539, with 158 new highs and 40 new lows.

Friday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Chase Manhattan Bank edged down 11/16 to 76 13/16 after

Warburg Dillon Read

and

Goldman Sachs

cut third-quarter and 1999 earnings estimates. Citing lower investment banking fees, trading revenues, and private equity gains, Warburg cut third quarter earnings per share to $1.28 from $1.33, and 1999 estimates to $5.40 a share from $5.55 a share, but kept its strong buy rating on the stock. Goldman cut third quarter and year estimates by five cents to $1.36 and $5.60 respectively, citing wider spreads and lower liquidity.

Mergers, acquisitions and joint ventures

Broadcom

(BRCM)

dropped 2 3/16 to 123 1/8 after the

The New York Times

reported that an investment group led by president and CEO Henry T. Nicholas III was close to inking a letter of intent to acquire the

Anaheim Angels

and

Mighty Ducks

from

Disney

(DIS) - Get Report

for between $400 million to $500 million. Disney was off 3/4 to 28.

Illinois Tool Works

(ITW) - Get Report

got hammered 5 7/8, or 7.3%, to 74 1/4 despite a hand from

ABN Amro

, which raised its price target to 100 from 93 and maintained its buy rating on the stock. Last night ITW said it would acquire

Premark International

(PMI)

in a $3.4 billion deal. Shares of Premark soared 16 15/16, or 49.5%, to 51 3/16.

Old Kent Financial

(OK)

slipped 3/8 to 39 after it announced plans to buy

Grand Premier Financial

(GPFI)

lately up 3/4, or 5%, to 15 13/16, in a deal valued at $394 million. Old Kent said it would assume a one-time charge of $30 million.

Merrill Lynch

(MER)

added 7/8 to 76 after it unveiled plans to take a 14.3% interest in the electronic trading system,

Archipelago Holdings

.

The Wall Street Journal

reported that Archipelago will start executing orders in Big Board-listed stocks.

Earnings/revenue reports and previews

Dow Chemical

(DOW) - Get Report

slipped 1/8 to 114 3/16 after CEO William Stavropoulos said he was comfortable with third-quarter earnings estimates, despite pressure from rising costs for raw materials. The 14-anlayst estimate calls for earnings of $1.32 a share.

GenCorp

(GY)

added 7/16 to 21 1/8 after posting third-quarter earnings of 53 cents a share, beating both the five-analyst estimate of 52 cents and the year-ago 42 cents.

Maytag

(MYG)

got socked 2 11/16, or 22.4%, to 43 7/8 after saying it expects third-quarter earnings to miss analyst estimates because of lower sales volume in its home appliances. The nine-analyst estimate calls for earnings of 99 cents a share. Maytag says it expects to report earnings of 84 cents a share.

National Semiconductor

(NSM)

tacked on 2 7/8, or 9%, to 34 7/8 after

Salomon Smith Barney

upped its 2000 earnings-per-share estimate and raised its price target to $55 from $35. Last night the company reported first-quarter profit of $57 million, or 25 cents a share, including a gain. The profit for the quarter ended Aug. 29 put the Santa Clara, Calif., chip concern ahead of schedule in returning to the black and reversed the year-ago loss of 63 cents a share. The 19-analyst estimate called for a loss of 14 cents a share. National Semi didn't release per-share figures excluding the gain, but said pretax profit excluding the gain was $1.2 million. Warburg also raised its earnings estimate for 2001 and 2001, while reiterating a buy rating on the stock.

Sprint

(FON)

slipped 1/16 to 47 5/16 after Warburg cut its 2000 earnings estimate to $1.90 from $2.05 citing higher dilutive effects in emerging businesses. Warburg maintained its buy rating on the stock.

Offerings and stock actions

Children's Place

(PLCE) - Get Report

iced plans for a 3 million-share offering by selling stockholders, citing a drop in its share price.

Analyst actions

eBay

(EBAY) - Get Report

jumped 9 3/8, or 6.5%, to 153 7/8 after

Wachovia Securities

rolled out coverage with a long-term buy rating and a price target of 208.

HealthSouth

(HRC) - Get Report

shed 1 13/16, or 23%, to 6 1/16 after

ING Barings

cut its rating to a hold from a buy. Yesterday, the company said it decided not to spin off its inpatient operations to shareholders and would instead keep its divisions under one business. HealthSouth also announced plans to restructure management at its outpatient services, a move that will result in charges of between $250 million and $300 million by the end of the year.

J.P. Morgan

also sliced its rating on the shares to a long-term buy from a buy.

MidAmerican Energy

(MEC) - Get Report

rose 13/16 to 30 1/16 after

Morgan Stanley Dean Witter

raised its rating to outperform from neutral.

Schumberger

(SLB) - Get Report

added 1/16 to 70 3/8 after

Salomon Smith Barney

analyst Geoff Kieburtz cut his 1999 earnings estimates to $1.05 from $1.10.

Petroleum GeoServices

(PGO)

slipped 15/16 to 20 3/4 after Salomon cut its 1999 earnings estimate to 65 cents from 75 cents.

TC Pipeline

(TCLPZ)

added 1/8 to 18 1/8 after

PaineWebber

upped its rating to buy from an attractive.

Tosco

(TOS)

edged down 3/4 to 27 1/4 after PaineWebber cut its rating to attractive from buy.

Ultramar Diamond

(UDS)

lost 7/16 to 26 after PaineWebber lowered its rating to neutral from attractive.

Union Pacific

(UNP) - Get Report

rose 1 7/16 to 53 3/16 after

Donaldson Lufkin & Jenrette

upped its rating to buy from accumulate.

Veritas

(VTS)

lost 1/4 to 20 3/4 despite an upgrade from Warburg to buy from hold. Warburg set a price target of 28.

Offerings and Stock Actions

American Power Conversion

(APCC)

added 11/16 to 20 11/16 after saying it will buy back up to 10 million shares of its common stock over the next two years.

Miscellany

Leasing Solutions

(LSN)

lost 5/16, or 45.5%, to 3/8 after saying it would be delisted from the

New York Stock Exchange

if it fails to meet the NYSE listing requirements.

Mallinckrodt

(MKG)

rose 1 1/4 to 33 3/16 after the company said it received

FDA

clearance for its

Oxismart

oxygen monitor.

Bank of New York

(BK) - Get Report

added 1/2 to 36 9/16 after a story in the

The Wall Street Journal

said wire transfer company

Torfinex

, which is connected to money-laundering investigation, seems to have operated illegally in the U.S., channeling millions of dollars out of Russia, according to law enforcement officials.

U.S. generic drug maker

Andrx Pharmaceuticals

(ADRX)

shed 2 3/16 to 69 3/4 after British drug group

Glaxo Wellcome

said it started legal action against it, alleging infringement of patents.

Potash

(POT)

fell 3 7/8, or 6.8%, to 52 7/8 after saying it would shut down two U.S. nitrogen fertilizer facilities and slice third-quarter earnings estimates in half. The plant closings in Clinton, Iowa and LaPlatte, Neb. along with three others announced on Aug. 12 will mean an estimated $37 million third-quarter write-off for the company. Potash said harsh market conditions in nitrogen and slowing trends in potash and phosphate would drive third-quarter earnings down to about a quarter of its $1.01 per share earnings for the same period last year. J.P. Morgan reduced the stocks rating to market performer from long-term buy.