Market Enjoys a Bounce, However Shaky

Union Carbide and the bond rally are pacing the Dow higher, while the Nasdaq continues to drift.
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A technical bounce still counts as a bounce, as far as this market is concerned.

A morning upswing in some indices was a welcome relief, as news of a major merger and a general sense that stocks are oversold chipped away at some of the interest-rate fears dogging the market in recent days. But by midsession some of the early gains were already beginning to fade.

The

Dow Jones Industrial Average

shot up this morning on news of a $9.3 billion merger between component

Dow Chemical

(DOW) - Get Report

and Dow component

Union Carbide

(UK)

, but by midday, the index was handed back much of its earlier, more-than-130-point jump. It was up 112, or 1.1%, to 10,789.

In initial trading hours, people were optimistic. "The market feels OK for a change," said Phil Marber, head trader at

Cantor Fitzgerald

. "The Dow was getting oversold and was due for a technical bounce. Chemical stocks are up on the merger and other cyclicals are also doing well. The next thing you'll see is the Internet stocks recovering."

But by late morning that prediction was wishful thinking as struggling technology issues depressed respective indices. The

Nasdaq Composite Index

was down 16, or 0.6%, to 2572, while

TheStreet.com Internet Sector

index was down 17, or 3.2%, to 502, nagged by

Infoseek

(SEEK)

and

Yahoo!

(YHOO)

, among other Internet issues.

"The Nasdaq has been extremely weak and is still under pressure due to a lot of margin selling, particularly in the Internet stocks," said Peter Cardillo, chief strategist at New York-based

Westfalia Investments

.

Aside from the clouds in technology skies, Cardillo's outlook was generally sunny. "You've got a very strong Dow but we also have bonds coming down and that's adding some relief to market worries about rates," said Cardillo, who added the market is in the process of discounting another rate hike. "We could see another day of bashing but today I think we'll move higher and end up on the plus side," predicted Cardillo.

On the Big Board, decliners were leading advancers 1,598 to 1,164 on 447 million shares. On the

Nasdaq Stock Market

2,344 decliners were outpacing 1,247 advancers on 545 million shares. New 52-week lows were leading new highs 114 to 26 on the NYSE and 96 to 34 on the Nasdaq.

The bond market was in positive territory after the

Treasury Department

announced plans to abandon the November auction of 30-year bonds and said it might buy back Treasuries. The benchmark 30-year Treasury was up 20/32 to 88 9/32, its yield easing to 6.11%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday'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.

)

When's the last time you saw a Dow stock that wasn't

IBM

(IBM) - Get Report

move like Union Carbide is today?

Dow component Union Carbide was going through the roof on news that Dow Chemical will buy it for a cool $9.3 billion in stock. Though the companies have billed the combination as a merger, Union Carbide stockholders, who will get 0.537 Dow shares for each share of Union Carbide, will have a 25% stake in Dow after the deal. Union Carbide was lately up 10 1/2, or 21.5%, 59 5/16. But Dow Chemical was looking rather droopy, off 7 1/8, or 5.7%, to 117 9/16, although

Brown Brothers Harriman

reiterated its short-term buy rating on Dow Chemical after the acquisition was announced.

Of course, the prospect of Union Carbide's acquisition raises the question of what might replace it in the Dow Jones Industrial Average. Let us know

what you think.

Mergers, acquisitions and joint ventures

American Greetings

(AM) - Get Report

was up 7/16 to 29 1/4 on news that it has signed a 5 1/2-year, $100 million deal with

America Online

(AOL)

to provide online greeting cards on AOL Web sites. The new deal is an expansion of a previous three-year, $10 million alliance between the two companies. AOL wasn't escaping the general malaise under the Internet sector was laboring; it was down 1 5/8 to 87 3/16.

Health Care Property Investors

(HCP) - Get Report

was up 5/16 to 44 3/16 after it set plans to buy fellow health care real estate investment trust

American Health Properties

(AHE)

for about $700 million in stock. American Health Properties was moving up 3/4, or 4.17%, to 18 3/4 on the news.

Live entertainment promoter

SFX Entertainment

(SFX)

was dumping 3 1/16, or 7%, to 40 7/8 after last night agreeing to acquire U.K-based entertainment service

Apollo Leisure

for $254 million in stock and debt.

Earnings/revenue reports and previews

McDermott International

(MDR) - Get Report

was falling 1/4 to 28 7/16 after it posted first-quarter earnings of 33 cents a share, a nickel shy of the four-analyst estimate and down sharply from last year's $1.88. McDermott blamed the shortfall on slack sales in its marine construction segment, a lull that CEO Roger Tetrault said is likely to continue for the next two quarters.

CNA Financial

(CNA) - Get Report

was shedding 5/16 to 35 3/8 after it posted second-quarter operating earnings of 23 cents a share, ahead of the four-analyst estimate of 21 cents but down from the year-ago 33 cents.

Ogden

(OG)

5/16 to 24 15/16 after it released second-quarter earnings of 49 cents a share, besting of the two-analyst estimate of 41 cents but down from the year-ago 52 cents.

Salton

(SFP)

was up 1 3/8, or 6.1%, to 24 1/16 after saying that it expects fiscal 1999 earnings will exceed current estimates. The single-analyst forecast calls for the company to earn $2.17 in fiscal 1999. The company expects to announce the results in early September. Meanwhile, Salton also said it has postponed a planned offering of 2.9 million shares of stock, citing market conditions.

Sysco

(SYY) - Get Report

was lately nudging up 3/16 to 31 1/2 after releasing fourth-quarter earnings of 35 cents a share, two cents above the 13-analyst consensus and up from the year-ago 29 cents.

theglobe.com

(TGLO)

was off 3/4, or 5.8%, to 12 3/16 after it last night posted a second-quarter loss of 27 cents a share, narrower than the three-analyst prediction of a 32-cent loss and up from the previous year's negative $1.65 a share.

Offerings and stock actions

The Net IPO show must go on. ADRs of Internet service provider

Internet Initiative of Japan

(IIJI:Nasdaq ADR) were lately up 5 15/16, or 25.8%, to 28 15/16 in their trading debut.

Goldman Sachs

had priced the offering at $23 an ADR, above the expected pricing range of $18 to $20 an ADR.

Analyst actions

CVS

(CVS) - Get Report

was plunging 3 3/16, or 6.5%, to 46 3/16 after

Merrill Lynch

cut it to near-term accumulate from near-term buy.

Web site management firm

Interliant

(INIT)

was falling 2 9/16, or 15.8%, to 13 3/4 after Merrill started it with a cool near-term accumulate and long-term buy. Merrill also set a 12- to 18-month price target of 20 for the stock.

Walgreen

(WAG)

was sinking 1 1/2, or 5.5%, to 25 11/16 after Merrill cut it to near-term neutral from near-term accumulate.

Miscellany

Allegiance Telecom

(ALGX)

was flying up 1 5/8, or 3.5%, to 48 after it said that

Vulcan Ventures

, the umbrella firm of

Microsoft

(MSFT) - Get Report

co-founder Paul Allen, will buy 1.5 million shares of Allegiance common stock from its existing private equity investors at $50 a share.