The country's biggest bank,

Bank of America

(BAC) - Get Bank of America Corp Report

, quashed rumors that it would be hurt by a line of credit drawn by California utilities and large losses from derivatives trading. The speculation sent the major indices tumbling, but investors were disbelieving BAC's announcement.

Lately, the

Dow Jones Industrial Average and the

Nasdaq Composite Index were heading back down after trying to bounce. The Comp was at session lows.

The fear firing the selloff in financials is that the

Fed's surprise cut in interest rates Wednesday was engineered to bail out the ailing financial sector.

Trading in Bank of America shares was halted just after the opening bell. At about 10 a.m. the bank announced that it does not see any significant derivative losses, that it remains comfortable with its 2001 credit quality guidance and that it has seen no other significant trading losses. The stock opened at 10:30 a.m., 3.4% lower, and lately was off 7.4%.

Concerns over weakening credit quality and trading losses have put pressure on many of the financial giants lately. Investors are particularly worried about utility company debt, given California's power woes.

Financials were getting punished, with blue-chips

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

down 6% and

Citigroup

(C) - Get Citigroup Inc. Report

off 3.8%. The

American Stock Exchange Securities Broker/Dealer Index

was off 4.1%, and the Philadelphia Stock Exchange/KBW Bank Index was also 4.1% lower.

The euphoria induced by

Greenspan's gang's rate cut was nowhere to be found today, especially in tech, where such big-cap techs as

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

,

JDS Uniphase

(JDSU)

and

Oracle

(ORCL) - Get Oracle Corporation Report

were getting killed.

Also, more bad news on the earnings front with Internet consulting firm

Sapient

(SAPE)

warning that its unaudited fourth-quarter earnings were 16% short of estimates. In recent trading it was off 15.4% to $12.75.

And

Next Level Communications

(NXTV)

, a communications-equipment maker, came out last night and cut its 2001 growth outlook.

W.R. Hambrecht

followed up the bad news with downgrades for both.

Banc of America Securities

was involved in some other bad news on the Street. The firm slashed chipmaker

Applied Micro Circuits'

(AMCC)

price target to $120 from $160 because of volatile market capitalization trends. The stock was 11.4% lower to $65.06.

Revisions of revenue estimates on five Dow components weren't helping the Dow much.

Lehman Brothers

lowered estimates on

3M

(MMM) - Get 3M Company Report

and

Alcoa

(AA) - Get Alcoa Corp. Report

,

Robertson Stephens

TheStreet Recommends

cut retailer

Wal-Mart's

(WMT) - Get Walmart Inc. Report

estimates and

UBS Warburg

and

Goldman Sachs

took down PC maker

Hewlett-Packard

(HWP)

.

Goldman Sachs also lowered its estimates for

IBM

(IBM) - Get International Business Machines (IBM) Report

. 3M was off 6.5%, Aloca was falling 1.5%, Wal-Mart was down 3.2% and H-P was falling 6.5%. IBM was up slightly, higher by 0.5%.

Today's

employment report was friendlier than some doomsayers had been predicting. Unemployment remained even with the previous month at 4%, despite forecasts it would rise to 4.1%. New nonfarm payrolls rose to 105,000, just above forecasts of 102,000 and a bit of a rebound from November's surprisingly low 94,000. But growth in average hourly earnings came out just above forecasts at 0.4%, indicating that wage inflation continues to grow. Economists were expecting 0.3%.

The jobs data is considered the best measure of the overall health of the economy and sets the tone for other indicators that will be released this month.

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Sector Watch

Geez, it's only a little bad news. Don't get so defensive!

Yet, investors were flocking to such defensives as drugs and tobacco. Both sectors have been suffering the past couple days as money flowed in riskier technology stocks, but today they were leading the parade. The

American Stock Exchange Pharmaceutical Index

was 0.4% higher, while the

American Stock Exchange Tobacco Index

was rising 1%.

Energy stocks were back in favor with the

American Stock Exchange Natural Gas Index

up 2.2%, the

Chicago Board Options Exchange Oil Index

was up 1.5%, and the

Dow Jones Utility Average

was up 0.9%.

Internet, biotech, semiconductor and PC stocks were all underwater.

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>Bonds/Economy

Treasury notes are selling higher as traders remain convinced the

Federal Reserve will trim interest rates once again by the end of the month. The long bond, after falling earlier in the session, has checked its slide. It should finish higher later this afternoon if its daily drift over the past week holds true. Treasury yields are near their two-year lows.

The unemployment data released today was not as bad as feared, but it didn't change the market's mood. Some analysts are guessing that the currently available payroll and unemployment information will be revised and next month's report will be a lot worse. The morning didn't go by without a flutter though. Misleading news about the financial services sector being exposed to defaulting California utilities supplied the tension. The equity market fell sharply and shorter Treasuries shot upward until Bank of America denied the rumor.

The benchmark 10-year

Treasury notelately was up 14/32 to 105 25/32, lowering its yield to 4.984%.

In economic news, the

employment report

(

definition |

chart |

source

) had nonfarm payrolls, which are new jobs created during the month, rising by 105,000 in December. The government accounted for more than half of this growth, while privately held manufacturers continued to lose jobs. The unemployment rate remains at 4%, slightly better than expected. Economists polled by

Reuters

had forecast it at 4.1%.

The augmented unemployment rate rose 7% in December as compared to 6.9% the previous month. It differs from the regular unemployment number by also counting those of the unemployed who are not actively looking for a job but will begin working again if offered one.

The average hourly earnings increased 0.4%, little more than expected, as the annual rate edged up to 4.2% from 4.1%.

New home sales

(

definition |

chart |

source

) fell 2.2% to 909,000 in November, a little more than predicted, from 929,000 in October. Due to the low mortgage rates, economists had expected the number at 913,000. It has now declined for the third consecutive month but remains well above the level it had dipped to earlier last summer.

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