The blue-chip

Dow and the tech-steeped

Nasdaq shifted and stumbled at the open, but were lately soaking up some cash and making good headway into the green. Breadth wasn't great -- with decliners pretty much matching advancers on both the Nasdaq and the New York Stock Exchange -- but volume was decent, something traders said they were looking for as one convincing sign a rally will stick.

Following last week's 3-day rally and yesterday's 3-digit bounce on the Nasdaq, as well as the index's ability to shake off some pretty bad news of late, more and more investors are on the lookout for a short-term rally in tech stocks.

"We're going to drift a little higher this morning," said Todd Clark, head of listed trading at

W.R. Hambrecht

.

"We need three things out of this session: stronger breadth than we saw yesterday -- like 2 to 1-- continued higher volume and to close stronger rather than weaker. We need to close stronger because we're bumping up against some big supply issues

stock for sale and we still haven't broken out of a down trend line. We need an up close to show that the market is eating through some of that supply," he added.

Tech bell-cow

IBM

(IBM) - Get Report

was the market's real sweet spot following its highly anticipated earnings report last night. The PC maker

reported solid fourth quarter earnings and revenues and confirmed its 2001 outlook. Big Blue was a fire in the Dow's belly, adding 70 points of upside to the blue-chip index.

IBM's news instilled some vigor in the rest of big-cap tech and helped the PC makers storm higher. Some traders also attributed the bounce in tech stocks to news of greater capital expenditures out of Intel Tuesday and

Advanced Micro Devices

(AMD) - Get Report

last night. Worries over slowing capital expenditures have plagued the tech sector for months, since many of companies' biggest capital expenditures go to tech investments. The

Philadelphia Stock Exchange Computer Box Maker Index was up 6.3%

.

AMD also gave a better outlook than Intel for the first quarter, which helped to lift the rest of the semiconductor sector. The chip stocks -- which have been shredded since early September as concerns over inventory buildup and the afore-mentioned slowing technology spending grew -- have been recovering slowly in the past month. AMD was up 11.5% to $20.56. The

Philadelphia Stock Exchange Semiconductor Index

was rising 2.7%.

Apple Computer

(AAPL) - Get Report

was another one of the day's rising stars after it beat much lowered forecasts with a narrower-than-expected loss. Though the loss is the company's first in three years, Apple shares were up 7.8% to $18.12.

Some market watchers attributed the rise to news that the company's aggressive price-cutting helped it lower inventory turnover to 5 1/2 weeks from the 11 weeks they stood at in early December, where 5 1/2 weeks is pretty much normal.

But in the thick of earnings season, and despite aggressively lowered earnings estimates, some companies continue to disappoint.

Machinery company

Caterpillar

(CAT) - Get Report

was stealing some of IBM's fire from the Dow, after the company forecast a 5% to 10% decline in earnings in 2001. Caterpillar was off 8% and shaving 24 weighted points from the Dow.

Even the Internet bone-yard continues to produce new casualties.

Vignette

(VIGN)

was one of today's sad stories and was the most actively traded stock on the Nasdaq. The web content management company tanked at the open after dropping its outlook for the first quarter of this year and announcing plans to layoff workers due to the slowing economy. Vignette was falling 43.3% to $7.12.

Last night's earnings picture contained plenty of blips. Specialty chipmaker

Xilinx

(XLNX) - Get Report

missed estimates; networking company

Redback Networks

(RBAK)

said gross margins are declining; and bellwether chipmaker

Advanced Micro Devices

(AMD) - Get Report

missed already revised estimates and said it expects flat first-quarter revenue.

Meanwhile, the energy crisis in California is worsening and threatens to bankrupt two huge utilities --

Edison International

(EIX) - Get Report

and

PG&E

(PCG) - Get Report

. And that could have repercussions far and beyond -- it would certainly be bad news for creditor banks. After tumbling precipitously since early December, Edison was lately down 2.1% to $8.63, and PG&E was off by 5.8% to $9.06.

The California utilities were given some extra time to pay delinquent bills by Gov. Davis last night. At the same time, the governor declared a state of emergency, ordered the state to buy power through the Department of Water Resources and authorized rolling blackouts.

Some say -- as the first week of earnings season comes to a close -- that investors have begun to turn away from earnings as a barometer of the overall tone of the market and focus instead on an anticipated recovery of the economy some six months down the line. After all, this past fall a flood of downward revisions to earnings forecasts sent the market spinning lower and some think all the bad news is already priced into the market.

Perhaps the biggest question now is how much of an interest-rate cut the market will get from the

Fed when it meets at the end of the month. Market pros wonder whether the central bank will knock off a quarter point or a half point. It's tough to gauge. Last Friday's

Producer Price Index fired up some concern that inflation remains a problem, and some began to worry that we would get only a quarter-point cut. But yesterday's

Consumer Price Index, and

industrial production numbers reassured some that a half-point shave is still in the cards.

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Sector Watch

In an environment where interest rates are falling, financials are often seen as

the

place to be. But not today. Almost all of the banks were getting soundly whupped and the

Philadelphia Stock Exchange/KBW Bank Index

was down 1.5% after

First Union

(FTU)

said it expects earnings growth to miss the 10% to 12% goal for 2001. First Union was tumbling 3.7%.

Bank of America

(BAC) - Get Report

was off 0.8%, the recently merged

J.P. Morgan Chase

(JPM) - Get Report

was falling 3.5% and

Bank of New York

(BK) - Get Report

was slipping 2.1%.

Financials tanked yesterday following an earnings miss from J.P. Morgan Chase. An industrywide slowdown in some investment banking and securities brokerage areas, along with worries that weakening credit quality could hurt banks' loan portfolios, has investors expecting a lot of

bad news from the banking sector this earnings season.

Consumer products companies were mixed today after a rough day yesterday.

3M

(MMM) - Get Report

which announced poor earnings results yesterday, continued to fall, off 1.7%. But the

Morgan Stanley Consumer Index

was up 0.6%.

Procter & Gamble

(PG) - Get Report

which lost 1.9% yesterday, was lately up 2.4%. Consumer products companies were some of investors' favorites at the end of last year as their earnings tend to be unaffected by a slowing economy. But investors have begun to unload these stocks as they move back into tech.

Other pockets of weakness today included retail, paper, transport and energy stocks.

Bonds/Economy

Treasuries are trading higher after beginning the day slightly lower. The earlier weakness was in part attributable to stronger-than-expected housing and employment data. But this was later offset by dismal manufacturing news for the mid-Atlantic region, which painted a gloomier economic picture. The vigor in U.S. Treasuries remains in the longer-term instruments, the yields of which have lowered, though they remain above the levels of mid-December.

The benchmark 10-year

Treasury note lately was up 30/32 to 104 24/32, lowering its yield to 5.118%.

In economic news,

initial jobless claims

(

definition |

chart |

source

), which are weekly benefits sought by the newly unemployed, fell to 306,000 in the week ended Jan. 13, from 343,000 in the previous week. The steep drop was much lower than expected, as economists polled by

Reuters

had actually forecast a rise to 360,000. Analysts attributed the plunge to seasonal factors, such as temporary holiday help or the fact that laid-off workers may be returning to work after staying home due to the weather.

Housing starts

(

definition |

chart |

source

) rose 0.3% to 1,575,000 units in December, while the number of building permits issued dropped 6.6%. The rise in new homes, primarily single-family units, is somewhat surprising considering the severe cold last month. But low mortgage interest rates, which have been declining for many weeks, provided the incentive. The four-week average, however, fell to 350,000 from 362,250, This is the first decrease since the first week of December.

The

Philadelphia Fed Index

(

definition |

chart |

source

) fell sharply, to -36.8 in January from -4.2 in December. This is its lowest reading since December 1990. The index, which monitors manufacturing activity in the economic district of Pennsylvania, New Jersey and Delaware, signifies economic contraction when negative.

Finally, the

Consumer Comfort Index

(

definition |

chart ), which measures the confidence consumers retain in the economy, declined to 16% in the week ended Jan.14, from 23% the previous week. It is 12 points below its 12-month average and well below the period high of 38%.

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