Investors have had an allergic reaction to this morning's

employment report, which showed stronger-than-expected job growth. In recent action, the major averages had done little to retrench from session lows -- both the

Dow Jones Industrial Average and the

Nasdaq Composite Index were solidly in the red.

The jobs report, considered the best single snapshot of the health of the economy, suggested that the economy might be healthier than Wall Street experts had previously thought. The data showed that nonfarm payrolls grew by 268,000 in January, compared with economists' forecast of 83,000 new jobs. Still, the report revealed that the unemployment level rose to 4.2% from 4%, which indicates a softening in labor conditions.

In afternoon trading, investors reacted negatively to the mixed report. Stocks that tend to benefit from an interest-rate cut, such as financial, retail, and cyclical issues, were down. The

Philadelphia Stock Exchange/KBW Bank Index

was lately down 0.3%, while the

S&P Retail Index

was recently off 2.3%, with losses in components

Home Depot

(HD) - Get Report

and

Wal-Mart

(WMT) - Get Report

. The

Morgan Stanley Cyclical Index

was behind 0.6%.

Technology stocks, which posted impressive gains during the month of January, were down for the second day in a row. Shares of

America Online

(AOL)

, the most actively traded stock on the

New York Stock Exchange

, were lately down 3.8% to $47.95.

Shares of large-cap Nasdaq issues were also suffering from an uncertain economic outlook:

Cisco Systems

(CSCO) - Get Report

dropped 5.9% to $36.12, while

Intel

(INTC) - Get Report

fell 4% to $36.38. Cisco and Intel were the most actively traded issues on the Nasdaq.

Over on the Dow, stocks that advanced yesterday, as investors gained hope about the economy's future, retreated today.

IBM

(IBM) - Get Report

was lately down 2% to $111.75, while

Minnesota Mining & Manufacturing

(MMM) - Get Report

was recently off 3% to 108.34. These two were taking the most points away from the Dow in recent trading.

Companies that reported

bad earnings news or profit warnings last night, were feeling the pain today. Shares of

National Semiconductor

(NSM)

were off 7.6% to $25.18. The chipmaker said that third-quarter revenues will be 20% below the previous quarter. It had earlier forecast that revenues would drop 10%. At last look, the

Philadelphia Stock Exchange Semiconductor Index

was down 3.5%.

Other earnings newsmakers (but heartbreakers) from last night were also trading lower:

American Power Conversion

(APCC)

decreased 7% to $13.44.

Silicon Storage Technologies

(SSTI) - Get Report

fell 8.6% to $13.28. And

Copper Mountain Networks

(CMTN)

dropped 24% to $5.94.

Sector Watch

Major technology indices continued to have a rough time finding their way this afternoon. The

Amex Networking Index

was getting taken apart, losing 4.3%, while the

Nasdaq Telecommunications Index

dropped 3.5%. The

Philadelphia Stock Exchange Computer Box Maker Index

, which tracks computer companies, lost 1.2%.

Drug stocks saw some modest gains in late-day trading. The

American Stock Exchange Pharmaceutical Index

increased 0.4%. Shares of

Amgen

(AMGN) - Get Report

were lately up 1.1%, while

Eli Lilly

(LLY) - Get Report

was ahead 1.4%.

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Bonds/Economy

Treasury prices are lower after having moved up for three consecutive days. The money market pulled back in the early session as hopes of yet another intermeeting interest rate cut decreased.

Employment data released this morning deflated some of that expectation, since the number of new nonfarm jobs created rose more than expected. At the same time, unemployment also rose more than expected. The jobless rate is now at its highest level in more than a year.

Yields are about 6 basis points higher for the notes, while those for the longer-dated securities are up marginally.

The benchmark 10-year

Treasury note lately was down 14/32 to 104 17/32, raising its yield to 5.144%.

In economic news, the

employment report

(

definition |

chart |

source

) showed that the number of new jobs, excluding those in farm-related industries, increased dramatically in January, to 268,000 -- much higher than expected. Economists polled by

Reuters

had forecast only 83,000 new jobs. Still, the current number could well be revised significantly, as data for the first month of the year fluctuates considerably. (Indeed, the December numbers were noticeably revised, with new jobs for that month now estimated at 19,000, far lower than the 105,000 initially reported.)

Average hourly wages remained unchanged after having increased by 0.4% at the end of the year. They had been expected to grow by another 0.3%.

The unemployment rate rose to 4.2% in January, from 4% in December. This is the highest jobless rate since July 1999. Economists had been expecting 4.1%. The augmented unemployment rate, which includes those who are willing to work but are not actively looking for a job, rose to 7.1%, the highest level since March. The pool of available workers rose to 10.37 million in January from 10.19 million in December.

The

Future Inflation Gauge

(

definition |

chart ) slipped to 112.4 in January, its ninth consecutive decrease. This indicates minimal inflation fears.

Factory orders

(

definition |

chart |

source

) in December were up more than expected, growing at a rate of 1.1% rather than the anticipated 0.6%. However, excluding the key transportation sector that comprises the aircraft industry, monthly orders actually dropped 0.8%. The drop reflects slowing new auto sales and weak year-end retail sales. Over the past 12 months, the average overall number has plunged. It stands at 0.5%, sharply lower than the 12-month high of 16.3% in June.

Finally, the

Consumer Sentiment Index

(

definition |

chart ) is at its lowest level in more than four years, at 94.7. However, it was revised slightly upward through the second half of January from a preliminary reading of 93.6.

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