Having dropped bombs on the tech sector

Friday, the market kept its artillery pointed at the sector this morning. But there are signs the group is emerging from the rubble. Meanwhile, blue-chips were standing up better under the assault despite a weakening bond market.

Tech enthusiasts faced more troubling news this morning:

Lehman Brothers

lowered earnings estimates on

IBM

(IBM) - Get Report

,

Hewlett-Packard

(HWP)

and

Sun Microsystems

(SUNW) - Get Report

. Additionally,

Donaldson Lufkin & Jenrette

downgraded

Intel

(INTC) - Get Report

.

Meanwhile,

Compaq

(CPQ)

cut prices on some PCs by as much as 11% and

ING Baring Furman Selz

cut its revenue and earning estimates on the PC giant. Compaq lately was down 5.8%

Bonds were reacting negatively to more evidence the U.S. economy is robust; the

National Association of Purchasing Management

said its

Purchasing Managers Index

jumped to 52.4 in February, up from 49.5 in January and stronger than the 50 reading projected by economists. The price of the 30-year Treasury bond lately was down 1 7/32 to 93 31/32, its yield rising to 5.67%. (For more on the fixed-income market, see today's early

Bond Focus.)

Nontheless, the

Dow Jones Industrial Average

, once as low as 9222.63, was down just 20 to 9287. IBM was leading the downturn, but strength in

Citigroup

(C) - Get Report

and

American Express

(AXP) - Get Report

was keeping losses at bay.

The tech-laden

Nasdaq Composite Index

was down 12 to 2276 after trading as low as 2264.32. Intel, Sun,

Dell

(DELL) - Get Report

and

MCI WorldCom

(WCOM)

are leading the retreat. The

Nasdaq 100

was down 0.5%.

Despite Intel's weakness, the

Philadelphia Stock Exchange Semiconductor Index

was lately up 0.4% as other chip and equipment makers rebound from Friday's harsh selloff. Gainers include

Applied Materials

(AMAT) - Get Report

and

Texas Instruments

(TXN) - Get Report

.

Internet names were mixed but with a negative bent.

TheStreet.com Internet Sector Index

was off a fraction to 510 while

TheStreet.com E-Commerce Index

was off 1 to 96. The E-Commerce index was being hampered largely by

eBay

(EBAY) - Get Report

, lately down 2.5% at 325 5/8 after trading as low as 306 1/4 earlier.

The

S&P 500

was off 9 to 1229 while the

Russell 2000

was down a fraction to 392.

"We're just sort of sitting here treading water," said Jay Meagrow, vice president of trading at

McDonald

in Cleveland. "I'm shocked we've only been hanging out between here and

the Dow down 30 all morning. I would have thought with another round of

negative comments on tech and Compaq opening as weak as it did and then the bonds thrown in on top, down 60 to 80 would have been the place to be. I think people ought to be a little happier than they are now."

However, Meagrow "wouldn't be surprised to see a selloff again" this afternoon.

In

New York Stock Exchange

trading, declining stocks were leading advancers 1,672 to 1,137 on 369 million shares. In

Nasdaq Stock Market

activity, losers were leading winners 2,046 to 1,564 on 411 million shares.

A Bull Ups the Ante

Helping prevent a bigger decline, perhaps, is word that Jeffrey Applegate, Lehman Brothers' long-bullish chief investment strategist, upped his 1999 target on the S&P 500 to 1350 from 1325 and raised his earnings-per-share estimate on the index to $47.50 from $47. Applegate left his asset allocation recommendation unchanged (80% equities and 20% bonds) but increased its weighting in technology and communication services, while lowering the exposure to financials.

The increase in technology to 37% of the portfolio vs. 21% in the S&P 500 and communication services to 12% vs. 9% in the index incorporated new purchases of Compaq and

Nextlink Communications

(NXLK)

, and an increase an existing holding of

AT&T

(T) - Get Report

.

The corresponding decrease in financials to 17% or the portfolio from 20% was completed by selling

Chase Manhattan

(CMB)

and lowering holdings of

U.S. Bancorp

(USB) - Get Report

. The decision stemmed from a realization that "it now appears likely that any

Fed

ease is likely to be later than we had originally forecast," he wrote.

Despite an admission interest rates will be "modestly higher than previously forecast," Applegate remains bullish because inflation remains in check. Also, economic growth will be stronger-than-expected (stronger even than recently upped economists' forecasts), he contends, helping earnings and allow price-to-earnings multiples to hit a forward P/E forecast of 24.5 for the S&P 500 at year end.

Applegate's optimism also stems from a view U.S. corporate balance sheets are in fine shape. Citing "a recent financial news article," the strategist takes exception to the argument stock buybacks threaten corporate profitability. The allusion was almost certainly to a

Feb. 22 story in

The Wall Street Journal

which this reporter also found of dubious logic because it did not reflect the fact interest rates are relatively low and thus more debt issuance may not be a negative.

Moreover, Applegate notes debt-to-equity ratios fell to 19% at year-end 1997 from 31% in 1991; the lowest since 1972 and approaching levels not seen since the 1960s.

"Contrary to claims that corporations are piling on loads of debt, one could argue that they are not taking on enough debt," he wrote. "In this environment, strong debt issuance is well in keeping with increasing shareholder value. So is net retirement of stocks through buybacks especially when that is a tax-advantaged way of compensating shareholders compared with dividends. Plus, while cash in balance sheets is not excessive, it is better to use that cash to buyback shares rather than use it in wasteful ways."

Monday's Midday Movers

By Heather Moore
Staff Reporter

Intel was down 4 9/16 to 115 7/16 after Donaldson Lufkin & Jenrette analyst Charles Boucher lowered his rating to market perform from buy. Boucher also cut his 1999 earnings estimate to $4.50 from $4.65 a share and his 2000 estimate to $5.30 from $5.45. He also dropped his price target to 160 from 175. DLJ noted that PC growth in the March quarter doesn't seem to be as good as expected and that much of the growth came in PCs priced below $1,000.

Meanwhile, IBM was off 3 to 166 7/8, H-P was up 1/4 to 66 11/16 and Sun Microsystems was off 9/16 to 96 13/16 after, as mentioned earlier, Lehman Brothers slashed 1999 earnings estimates by a nickel a share for each company because of fourth-quarter sales concerns.

Elsewhere in wounded tech,

Salomon Smith Barney

downgraded four equipment stocks:

ATMI

(ATMI)

was down 1 7/8, or 8.2%, to 20 3/4 and

Silicon Valley Group

(SVGI)

was down 1 1/8, or 8.5%, to 12 1/4 after the firm dropped both stocks to neutral from outperform;

Credence Systems

(CMOS)

, dropped to outperform from buy, was down 1 1/2, or 7.2%, to 19 11/16; and

Asyst Technologies

(ASYT)

, dropped to neutral from buy, was down 4 1/4, or 19.7%, to 17 1/2.

While saying the above companies may not have the revenue growth "to justify the current valuations," Salomon reiterated buy ratings on Applied Materials, which was up 1 7/16 to 57 3/16;

KLA-Tencor

(KLAC) - Get Report

, up 1 1/4 to 52 13/16; and

Electro Scientific Industries

(ESIO) - Get Report

, up 13/16 to 37 3/8.

Still elsewhere, Compaq was falling 2 1/16, or 5.8%, to 33 3/8 after trimming prices on, among others, its DeskPro PCs by 9% and its Armada notebooks by 11%. Rival

Gateway

(GTW)

was off 2 to 70 11/16 despite an upgrade to buy from hold at

NationsBanc Montgomery Securities

. Dell was off 1 3/8 to 78 3/4.

In other news:

Duke Realty Investments

(DRE) - Get Report

was down 7/8 to 20 15/16 after agreeing to buy

Weeks

(WKS)

for $1.7 billion in stock and debt. Weeks was up 1 5/16 to 28 5/16.

IDX Systems

(IDXC)

was up 2 1/4, or 9.6%, to 25 7/8 after

ING Baring Furman Selz

upgraded the stock to strong buy from buy.

Lehman Brothers

(LEH)

was up 2 11/16, or 5.1%, to 55 11/16 after DL J upped it to buy from market perform.

North Face

(TNFI)

was up 3 11/16, or 28.9%, to 16 1/2 after saying its board approved an agreement covering a recapitalization which resulted in CEO James Fifield and

Leonard Green & Partners

acquiring North Face for $17 a share in cash.

Patriot American Hospitality

(PAH) - Get Report

was up 3/8, or 6.9%, to 5 13/16 on word it's tossing its real estate investment trust status and plans convert to a regular tax-paying corporation. The firm also agreed to an equity investment of $1 billion from an investor group. Patriot, whose shares are paired with those of its operating company,

Wyndham International

, said James D. Carreker, chairman and CEO of Wyndham, was named to the additional position of CEO of Patriot American. Paul A. Nussbaum resigned as chairman and chief executive of Patriot American and was named chairman emeritus. Patriot American also posted fourth-quarter earnings of 22 cents a share, including charges, vs. the year-earlier 35 cents.

UGI

(UGI) - Get Report

was down 4 7/8, or 24%, to 15 7/16 after agreeing to merge with

Unisource Worldwide

(UWW)

in a stock swap valued at $1.5 billion. Unisource was up 13/16, or 12.5%, to 7 7/8. Under the agreement, UGI will issue 0.57 of a share for each Unisource share. Unisource Worldwide stockholders will own about 55% of the combined company.