An early rally on the major indices was quashed shortly after the open. The

Dow sank into the red, while the

Nasdaq drifted just above the flatline.

It's a battle between those who think that all the bad news is priced into stocks and those who think that recent upside represents a short-term rally in what is essentially a bear market. The latter were winning today.

But the market has been very volatile in recent weeks and could turn around.

Following Thursday's bounce, and after several tech bellwethers met or beat earnings and revenue estimates last night, stocks seemed to be poised for some more upside today. Wall Street has been on the lookout for a near-term rally in tech stocks since last week, when the

Nasdaq had a three-day rally -- something it had been unable to do since September.

Microsoft

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was one of the most actively traded stocks today after it beat its fourth-quarter revenue estimates and noted a 20% increase in unearned revenue from a year ago -- which points to greater future revenues. The company

met reduced earnings estimates. Microsoft was up 7.3% to $59.56. The stock has been rallying back since early this month after falling to a 52-week low in December.

Other bellwethers were also higher, including

Intel

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,

Cisco

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,

Texas Instruments

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,

IBM

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,

Oracle

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and

Dell

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.

But networker

Sun Microsystems

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was the one of the other most actively traded stocks on the Nasdaq. The only sour fruit in last night's earnings banquet, the company missed its revenue

estimates. Sun shares were lately trading down 13.1%.

Microsoft was lately adding 27.25 points of upside to the Dow. The tech blue-chips were also helping to minimize the Dow's losses -- IBM,

Hewlett-Packard

(HWP)

and Intel were slapping on a combined 39.45 points to the index.

Optical giant

Nortel

(NT)

also

met fourth-quarter earnings and revenue forecasts last night, and its shares were trading up 4.3% to $38.25. The Canadian company earned 26 cents a share on revenue of $8.8 billion. But it dropped forecasts for revenue growth in 2001 to 30% from the previous 30% to 35% target, confirming investors' concerns about a slowdown in near-term growth for the networking sector. And yet Nortel predicted a rally in telecom spending in the second half of this year.

Internet auction site

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eBay

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beat earnings and revenue estimates, and it was up 8.1% to $50.63. Earnings came in at 9 cents, 2 cents ahead of forecasts. The company's revenue hit $134 million, compared with estimates from analysts that it would hit $125.5 million. eBay is one of the few profitable Internet companies. On Tuesday, eBay had said it would raise the fees it charges to list items for auction in its Canadian business, encouraging a slew of analyst upgrades and giving investors further confidence in the company's business model. All three stocks were soaring in after-hours trading last night and this morning.

Home Depot

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was tanking, however, off 4.7% to $42.19 after it warned it expects fiscal fourth-quarter earnings to fall short of Wall Street estimates and that it sees weakness rolling over into the first half of this year. The company -- whose fiscal quarter ends Jan. 31 -- blamed the slowing economy and falling prices for building materials. Home Depot is now estimating earnings per share for the fourth-quarter of 20 cents per share, compared with analyst estimates of 24 cents per share. In the fall, it met lowered estimates for its third quarter, but said the fourth quarter would be disappointing.

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Sector Watch

Some note that failure of the industrial stocks to rally along with tech in the past week suggests continued uncertainty about the upturn.

If indeed investors are rallying because they think the Fed's interest rate cut a few weeks ago came in time -- and that the economy is going to see a soft landing -- then all cyclical stocks should respond in a similar way. Cyclical stocks tend to grow and slow in synch with the economy.

Today, the

Morgan Stanley Cyclical Index

was down 1.9%, with names like heavy-machinery

Caterpillar

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, down 3.4%, farm equipment giant

Deere

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falling 2.3%, and nonelectrical machinery and equipmentmaker

Ingersoll-Rand

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off 0.96%. Another industrial name,

United Technology

undefined

was slipping 2.9%.

Retail stocks, which are also supposed to rally as interest-rates fall, were in the muck. The

S&P Retail Index

was down 2.9%.

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Bonds/Economy

Treasuries have been trading lower for much of the morning as investors seek profits after having driven up prices for three consecutive days. The stronger opening in equities, paced by the better-than-expected earnings from prime tech movers, has also lessened the draw of fixed income instruments. But stocks are mostly in retreat now, giving Treasuries some breathing space. The long bond, which had led the money market rally over the week, is still deep in the red. Yields are up marginally across the board.

Notes and bonds have rebounded recently on renewed hopes that the

Federal Reserve will lower interest rates by half a percentage point.

The benchmark 10-year

Treasury notelately was down 20/32 to 104 22/32, yielding 5.123%.

In economic news, the

international trade

(

definition |

chart |

source

) report showed that the deficit narrowed to $32.99 billion in November from a revised reading of $33.55 in the prior month. This is the first time since mid 1997 that the deficit has declined two months in a row. Imports as well as exports fell. The trade data however lags the latest news about the economy, and currently available numbers do not contradict the slowing of the nation's economic growth.

The

Consumer Sentiment Index

(

definition |

chart ) fell to 93.6 in January from 98.4 in December, its lowest level since October 1998. The gauge measures the confidence consumers have in the economy six to nine months in the future

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