Market Shows Signs of Support but Gives No Hint of Rallying

The S&P 500 futures seemed to hold firm, but the rebound from the indices' lows wasn't strong enough to cheer the longs much.
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SAN FRANCISCO -- While the ghost of Octobers past is haunting some, traders got a fright early today as stronger-than-expected economic data revived the specter of a

Federal Reserve

rate hike next week. The frightening (albeit unlikely) possibility sent bond prices reeling and stock proxies stumbled in concert.

But in a reversal of recent trends, stocks rallied in the final 90 minutes of the session, leaving declines for major gauges far more modest than midday lows evinced.

"As far as I know it was nothing fundamental," Timothy Heekin, director of equity trading at

Thomas Weisel Partners

in San Francisco, said of the bounce. "This was a little bit of bottom picking. People got comfortable because of how low prices had gotten even though you're going into a weekend and the

Federal Open Market Committee

is meeting next week. It was a little bit of a technical rebound."

On that front, Heekin said 1276 was "big support" in the futures market. The S&P December futures contract traded as low as 1276.50 today before closing at 1293.50.

"We're in the mode we think a real good bottom of 1267 in the futures was set earlier in the week," the trader said. "We think you can safely buy dips until those support levels are broken."

Nevertheless, the price of the 30-year Treasury broke lower today, falling 1 5/32 to 99 26/32, its yield rising to 6.14%. Already unnerved by some strong economic data in Europe, the bond market tanked after the

National Association of Purchasing Management

survey came in at 57.8 in September, up from 54.2 in August. Additionally, the key prices paid component of the index rose to 67.6 in September from 59.8 in August. Separately,

personal consumption

rose 0.9% in August vs. a forecast of a rise of 0.7%.

Personal income

rose 0.5%, ahead of the 0.4% expectations. (For more, see today's late

Bond Focus.)

The

S&P 500

posted the most impressive turnaround of major gauges, closing up 0.10 to 1282.81 after trading as low as 1265.86. The index's comeback was fueled by another rally by pharmaceuticals and a rebound from

yesterday's losses by chip and equipment makers. The

American Stock Exchange Pharmaceutical Index

rose 3.3% while the

Philadelphia Stock Exchange Semiconductor Index

rose 1.9%.

The index was also aided by HMOs, which rose after a federal judge dismissed a class-action lawsuit against

Aetna

(AET)

, which gained 4.1%.

The

Dow Jones Industrial Average

fell as low as 10,184.03 but closed off 63.95, or 0.6%, to 10,273.00.

Dow gainers included

Merck

(MRK) - Get Report

and

DuPont

(DD) - Get Report

, the latter of which denied reports of a profit shortfall.

Hewlett-Packard

(HWP)

was the biggest drag on the index, falling 3.9% after forecasting fourth-quarter revenues growing at the low end of expectations.

IBM

(IBM) - Get Report

fell 2.7% in sympathy, amid growing concern last month's earthquake in Taiwan will more severely curtail growth prospects for tech names than originally expected.

Analyst action on

Dell

(DELL) - Get Report

and

Apple

(AAPL) - Get Report

furthered that sentiment.

But Dell embodied the market's recovery and ultimately outperformed). After falling as low as 39 3/4 following a downgrade by

BancBoston Robertson Stephens

, the PC maker rallied to close up 5/8 at 42 17/32.

Boosted by chip names as well as Dell's rebound, the

Nasdaq Composite Index

rose from an intraday nadir of 2698.01. But the tech-and-don't-stop-bringing-it index couldn't recover all the lost ground, closing off 9.28, or 0.3%, to 2736.88.

The Comp was restrained by weakness in tech bellwethers such as

Sun Microsystems

(SUNW) - Get Report

and

MCI WorldCom

(WCOM)

. Meanwhile, Apple fell 2.5% after

Credit Suisse First Boston

cut its earning estimates.

With the notable exception of

America Online

(AOL)

, Net bellwethers also retreated.

TheStreet.com Internet Sector

index fell 0.26 to 647.12 vs. its session low of 631.91.

The

Russell 2000

declined 3.77, or 0.9%, to 423.53.

In

New York Stock Exchange

trading, 896.2 million shares were exchanged while declining stocks led advancers 1,797 to 1,253. In

Nasdaq Stock Market

action 983.2 million shares traded while losers led 2,163 to 1,791. New 52-week lows bested new highs 158 to 33 on the Big Board and by 111 to 40 in over-the-counter trading.

Clinging to the Range

The NAPM figure "is not a number I would have liked to have seen coming into the Fed's meeting on Tuesday," said Barry Hyman, senior market analyst at

Ehrenkrantz King Nussbaum

. "The prices-paid indicator shows inflationary pressures in the system. That's something the Fed can't ignore."

Still, Hyman does not expect the FOMC to raise rates when it meets Tuesday, and only one of the 31 primary dealers expects a tightening, according to a

Reuters

poll.

But given the lack of preparedness among market players, Hyman said a rate hike Tuesday could cause the Dow to drop below the 10% decline which represents a technical correction and "which it's trying to hold. " After today, the blue-chip index is down 9.3% from its all-time high, while the S&P 500 and Nasdaq are down 9.6% and 5.2%, respectively, from their highs.

The strategist noted the S&P 500 is "clinging" the low end of the trading range of 1275 to 1375 he described

Aug. 30.

"The S&P has broken its 200-day moving average but it hasn't broken out to the downside yet," he said. But "it is nerve-wracking to see making of a potential bottom like yesterday. You had slower

GDP

-- the economy is slowing. Then today, you get the exact opposite."

Hyman was further disturbed by Hewlett-Packard's profit warning because technology has been the market's growth provider. Additionally, he expressed concern about the absence of fear in market psychology despite the recent downturn. Should the S&P break below the bottom end of its trading range, he forecast it falling into the 1190-to-1210 area.

But Hyman is far from bearish, saying he is raising cash in anticipation of buying "quality companies" toward year-end to "take advantage of tax-loss selling."

Among other indices, the

Dow Jones Transportation Average

fell 40.82, or 1.4%, to 2868.34; the

Dow Jones Utility Average

added 3.28, or 1.1%, to 301.54; and the

American Stock Exchange Composite Index

fell 1.70, or 0.2%, to 786.53.

For the week, the Dow lost 0.1%, the S&P rose 0.4%, the Nasdaq slid 0.1%, the Russell rose 1.5%, the DOT added 4.8%, the Dow transports fell 0.4%, the Dow utilities rose 2.3% and the Amex Composite rose 1.9%.

Elsewhere in North American equities today, the

Toronto Stock Exchange 300

slipped 26.82 to 6930.90 and the

Mexican Stock Exchange IPC Index

fell 68.07 to 4982.39. For the week, the TSE jumped 2.5% and the IPC edged up 0.1%.

Friday's Company Report

By Tara Murphy
Staff Reporter

(

Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified. New highs and lows on a closing basis unless otherwise specified.

)

Hewlett-Packard slid 3 5/16 to 87 7/16 after CEO Carly Fiorina said she sees fourth-quarter revenue growth at the low-end of the 10% to 13% range. Fiorina also said that the company had a "decent shot" at meeting the 22-analyst fourth-quarter estimate of 99 cents a share, up from the year-ago 79-cent profit.

Revlon

(REV) - Get Report

cratered 6 3/16, or 33.9%, to a 52-week low of 12 after it said it has decided to pursue the sale of its worldwide Professional Products business and its noncore Latin American brands. Revlon said it is negotiating or in active talks with potential purchasers and anticipates concluding the sales by the end of the first quarter of next year for gross proceeds of more than $500 million. Revlon also said it has decided not to sell its remaining cosmetics, personal care, fragrances and skin treatment businesses.

Mergers, acquisitions and joint ventures

DSP Communications

(DSP)

shot up 2 5/16, or 12.2%, to 21 5/16 on continuing rumors that the company is being targeted for acquisition and after the company told investors at the

Banc of America Securities Investment Conference

in San Francisco that contracts with a large Korean customer should increase revenue next year.

The stock has slid over the past few weeks. On Sept. 17,

U.S. Bancorp Piper Jaffray

downgraded DSP from strong buy to neutral. And

Motorola

(MOT)

, which had been rumored to be interested in buying DSP, announced it would merge with set-top box maker

General Instrument

(GIC)

, making a purchase of DSP unlikely.

Merrill Lynch

analyst Joseph Osha said rumors have also circulated for several weeks that communications chip giant

Conexant

(CNXT) - Get Report

would acquire DSP. "It could happen," he said. "I was with Conexant recently, and I asked them and they didn't deny it."

Another possible candidate to buy DSP might by

Analog Devices

(ADI) - Get Report

, Osha said, but he sees that as less likely. Analog Devices is currently working with

Intel

(INTC) - Get Report

to develop a new DSP architecture.

The market for digital signal processing technology, essential to wireless communications has been heating up. While Conexant has some DSP technology for GSM phones, the standard used mostly in Europe, DSP Communications would give it similar technology for the competing CDMA standard, developed by

Qualcomm

(QCOM) - Get Report

. "I classify rumors into dumb and not dumb," Osha said. "This rumor is not dumb. It makes sense."

DSP Communications options were active in late September, and again Friday. Among the most heavily-traded were the October 20, October 25 and November 20 call options. (Call options are contracts which grant the buyer the right to buy stock, usually 100 shares, at a set time and price in the future.)

Nearly every call option rose in price. But the October 25 calls nearly doubled, up 1 1/4 ($125 per contract) to 1 7/16 ($143.75) on volume of 654 contracts, which was nearly equal to the open interest.

--

Marcy Burstiner

AT&T

(T) - Get Report

skidded 1 13/16 to 41 11/16 after it said it was considering strategic options relating to its 58% interest in

Excite@Home

(ATHM) - Get Report

. In response to rumors that America Online had been pinned as a possible buyer, AT&T said it has not forged any definitive deals. Shares of Excite@Home advanced 3, or 7.3%, to 44 7/16, while AOL advanced 3 3/4 to 108.

For a third time,

CBS

(CBS) - Get Report

and

Viacom's

(VIA) - Get Report

$37 billion merger plans have held up a

King World Productions

(KWP)

shareholder vote on whether to merge with CBS. The CBS unit inked a deal to merge with its parent six months ago, in a $2.5 billion stock swap. King World, which cannot vote on the merger until its shareholders receive financial materials from CBS-Viacom, has set another special meeting for Oct. 18. Shares of CBS hopped 1 5/8 to 47 7/8, while King World was climbing 1/2 to 38.

Dexter

(DEX) - Get Report

advanced 1/4 to 37 9/16 after it said that

International Specialty Products

(ISP)

, which fell 1/8 to 9 13/16, has filed for

Securities and Exchange Commission

approval to purchase more than a 15% interest in Dexter's voting stock.

Kellogg

(K) - Get Report

declined 5/16 to 37 1/8 after it announced plans to acquire

Worthington Foods

(WFDS)

, which hoped 8 3/4, or 61.4%, to 23 1/16 for $24 a share, based on about 12.8 million shares outstanding, or $307 million. Kellogg expects to complete the deal by year-end. Worthington manufactures and markets "vegetarian and other healthful foods."

Omnicom Group

(OMC) - Get Report

stumbled 1 1/16 to 78 1/8 after it announced plans to acquire marketing firm

M/A/R/C

(MARC)

, which jumped 5 1/16, or 40.6%, to 19 11/16. The transaction, a tender offer estimated at $116 million, calls for Omnicom to pay $20 to M/A/R/C stockholders for each held share.

Pioneer

(PHB) - Get Report

climbed 1/4 to 39 15/16 after it said its shareholders gave their stamp of approval for its proposed merger with

DuPont

(DD) - Get Report

, which advanced 2 1/2 to 63.

Sony

(SNE) - Get Report

popped 5 7/16 to 155 1/2 after it said that it had forged a deal with its three listed units to make them fully owned Sony subsidiaries. According to the terms,

Sony Music Entertainment

,

Sony Chemicals

and

Sony Precision Technology

would become fully owned subsidiaries in March. The transaction, which is a stock exchange, calls for Sony to issue 32.98 million new shares.

Earnings/revenue reports and previews

York

(YRK)

plummeted 11 11/16, or 32.5%, to 24 1/4 after warning it expects to earn 80 cents to 85 cents a share in the third quarter. The three-analyst estimate called for 95 cents. The projected earnings include a $10 million gain on the sale of York's

Viron

unit to

CMS Energy

(CMS) - Get Report

. CMS slid 1/4 to 33 11/16.

Anicom

(ANIC)

fell 5/8, or 11.9%, to 4 after saying it would assume a third-quarter post-tax loss of $12 million after it takes on a restructuring charge for an equal amount. The company is combining its 75 distribution hubs into 61 and downsizing another 12 locations, which involves cutting its workforce by 10%.

Datascope

(DSCP)

mounted 2 3/4, or 7.8%, to 37 13/16 after it said it expects first-quarter earnings per share to between 29 cents and 31 cents, above the current three-analyst estimate of 24 cents a share.

Estee Lauder

(EL) - Get Report

hopped 2 9/16, or 6.5%, to 41 5/8 after it said that it expects first-quarter earnings to meet the 10-analyst estimate of 31 cents a share.

Midland

(MLAN)

bounced 3/4 to 23 after it said it expects third-quarter earnings to match the year-ago 66 cents a share, greatly beating the two-analyst estimate of 52 cents a share.

PNC

(PNC) - Get Report

declined 3/16 to 52 1/2 after it said it would assume a $70 million post-tax gain from its offering of investment management division

BlackRock

(BLK) - Get Report

. After the offering, PNC will hold a 70% stake in BlackRock, remaining the majority shareholder. The deal's underwriters Merrill Lynch, Goldman Sachs, Lehman Brothers and Prudential Securities priced the offering at $14 per share. BlackRock climbed 1/8 to 14 1/8 in its first day of trading.

Service Corp. International

(SRV) - Get Report

skidded 2 11/16, or 25.4%, to 7 7/8 after it lowered its third-quarter earnings estimate to 10 cents to 13 cents a diluted share. The current eight-analyst estimate is for earnings of 22 cents a share.

Systems & Computer Technology

(SCTC)

fell 2 9/16, or 20.4%, to 10 after it said it expects fourth-quarter earnings to be 11 cents to 15 cents a share, greatly missing the five-analyst estimate of 24 cents a share.

USG

(USG)

mounted 7/16 to 48 1/16 after it said it would post record earnings for fiscal 1999, citing robust home building and remodeling markets. The nine-analyst fiscal 1999 consensus estimate expects the company to earn $7.96 per share, up from the year-ago $6.60.

Offerings and stock actions

Covad

(COVD)

skidded 4 13/16, or 11%, to 38 after it said it planned to register to sell 13 million common shares.

Digital Insight

(DGIN)

soared 17 3/16, or 114%, to 32 1/8 in its first day of trading. The IPO priced at $15.

OshKosh B'Gosh

(GOSHA)

jumped 4 5/16, or 27.9%, to 19 3/4 after it said it will buy back 4.5 million class A shares in a Dutch auction. The company said it would also buy back 100,000 shares in a self-tender.

Williams Communications

(WCG) - Get Report

leaped 5 1/16, or 22%, to 28 1/16 after making its trading debut. The IPO priced 26.9 million shares at $23.

Vixel

(VIXL)

skyrocketed 23 5/8, 131%, to 41 11/16 after making its trading debut.

BancBoston Robertson Stephens

priced the 4.3 million-share IPO above range at $18.

Vodafone AirTouch

(VOD) - Get Report

stumbled 6 1/4 to 231 1/2 after it set a 4-for-1 stock split.

Analyst actions

Aetna

(AET)

climbed 2 to 51 1/4 after

SG Cowen

cut it to neutral from strong buy and dropped its price target to 57 from 110.

Apex

(APEX) - Get Report

skidded 3 13/16, or 20.4%, to 14 15/16 after SG Cowen sliced its shares to buy from strong buy. After yesterday's close, the company

warned investors that it would post third-quarter earning below estimates.

British Telecom

(BTY)

slipped 1 15/16 to 153 after

Lehman Brothers

slashed its earning outlook by 3%, but maintained its outperform rating.

Burlington Resources

(BR) - Get Report

climbed 3/16 to 36 15/16 after

Deutsche Banc Alex. Brown

upped its rating on the shares to strong buy from buy.

Ceridian

(CEN) - Get Report

slid 4 1/4, or 17%, 20 5/8 after

Goldman Sachs

sliced its rating to market outperform from its recommended list.

Dell advanced 5/8 to 42 despite

Salomon Smith Barney

cutting its October-quarter earnings estimate to 16 cents a share from 20 cents, citing possible problems stemming from Taiwan's earthquake. In addition, BancBoston Robertson Stephens cut the stock's rating to long-term attractive from a buy.

Engineering Animation

(EAII)

fell 7 1/16, or 44.6%, to 8 3/4 after

J.P. Morgan

lowered its rating to market performer to buy.

Esterline

(ESL)

bounced 3/8 to 16 1/8 after

PaineWebber

started coverage of the stock at attractive.

Four Seasons

(FS)

was unchanged at 36 9/16 after Merrill Lynch initiated coverage with an intermediate-term accumulate, long-term buy rating.

Hartford Financial

(HIG) - Get Report

slipped 1 13/16 to 39 1/16 after

Warburg Dillon Read

sliced its third-quarter earnings estimates to 80 cents from 93 cents a share.

Humana

(HUM) - Get Report

advanced 3/16 to 7 1/16, while

PacifiCare

(PHSY)

shares bounced 1 3/16 to 44 1/2, after SG Cowen cut their stock to neutral from buy.

Moog

(MOGA)

slid 1/4 to 28 5/8 after Merrill Lynch rolled out coverage of the stock with an intermediate-term accumulate, long-term buy rating and a 12- to 18-month price target of 40.

Oxford Health Plans

(OXHP)

was unchanged at 12 9/16 after Salomon Smith Barney cut its price target to 21.

Perry Ellis

(PERY) - Get Report

advanced 1, or 9.8%, to 11 1/4 after Merrill Lynch started coverage with an intermediate, long-term accumulate rating.

R.J. Reynolds

(RJR)

mounted 5/8 to 27 5/8 after

Brown Brothers Harriman

upped its long-term rating to buy.

Stillwater Mining

(SWC)

was unchanged at 26 7/8 after Warburg Dillon Read cut its fiscal 1999 estimates to 76 cents a share from $1.08.

Tiffany

(TIF) - Get Report

declined 1/2 to 59 7/16 after PaineWebber initiated coverage of the shares with a neutral rating.

Tosco

(TOS)

added 5/16 to 25 9/16, and

Ultramar Diamond Shamrock

(UDS)

slid 3/8 to 25 1/8, while

Valero Energy

(VLO) - Get Report

shares declined 1/16 to 19 3/16, after

Lehman Brothers

raised their ratings to buy from neutral.

Trimeris

(TRMS)

climbed 7/8, or 5.2%, to 17 5/8 after Deutsche Banc Alex. Brown rolled out coverage with a strong buy rating.

UnitedHealth

(UNH) - Get Report

skidded 2 15/16, or 6%, to 45 3/4 after Salomon cut its price target to 54.

UnumProvident

(UNM) - Get Report

jumped 2 3/16, or 7.4%, to 31 5/8 after

Morgan Stanley Dean Witter

upgraded the stock to strong buy from outperform.

WellPoint Health Networks

(WLP)

sank 3/8 to 56 5/8 and

Foundation Health

(FHS)

slid 1/16 to 9 3/8 after SG Cowen downgraded its shares to a buy from a strong buy. In addition, Salomon cut the stock's price target to 74.

Wrigley

(WWY)

declined 3/4 to 68 1/16 after Merrill Lynch lowered its fiscal 1999 earnings estimates to $2.66 from $2.70.

Miscellany

An attorney representing hundreds of former fen-phen users told

Reuters

that

American Home Products

(AHP)

has settled four California lawsuits from other former fen-phen users prior to their court hearing, which was set for Monday. Paul Rheingold said that the former users had developed the fatal disorder, primary pulmonary hypertension. The drug company is being hit with 4,100 lawsuits related to the controversial diet pill that is now believed to cause heart valve problems. Despite the legal proceedings, AHP shares jumped 2 1/2, or 6%, to 44.

Ford

(F) - Get Report

plans to spin off its auto-parts unit --

Visteon Automotive Systems

-- to shareholders and give wage and job guarantees to the division's factory workers,

The New York Times

reported, citing people close to the matter. The

Times

reported that Ford pondered selling the unit to either

Lear

(LEA) - Get Report

or

Delphi Automotive Systems

(DPH)

, but labor issues along with tax considerations persuaded Ford to spin off the unit. Delphi was spun off in May from

General Motors

(GM) - Get Report

. Shares of Ford climbed 3/8 to 50 5/8.

In the Inside Wall Street column in

Business Week

, penned by Gene Marcial, one item says some analysts and big investors think that

STMicroelectronics

(STM) - Get Report

is going toward 100. Shares of STMicro advanced 3 1/4 to 77 5/16.

The column also offers up a bullish item on

Salton

(SFP)

, a household appliances maker, which Peter Schaeffer, an analyst at

Donaldson Lufkin & Jenrette

, thinks will hit 40 in a year, and Doug Raborn, a money manager who heads his own investment shop, thinks the stock could go to 45. Salton shares slid 13/16 to 30 3/16.

Separately, Salton said it withdrew its 4.6 million-share proposed stock offering because it doesn't think the company's future growth and current profitability are currently reflected in its stock price.

Also in the column,

Ballantyne of Omaha

(BTN) - Get Report

is mentioned as a possible takeover target. Analyst Michael Legg of

Prudential Securities

, is cited in the column as saying that

Imax

(IMAX) - Get Report

may acquire Ballantyne outright or acquire the 26% stake in the company that

ARC International

(ATV) - Get Report

owns. Shares of Ballantyne climbed 3/8, or 6.6%, to 6, and ARC advanced 1/16 to 1 1/2, while Imax shares mounted 1/4 to 20.