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Stocks End Mixed in Choppy Trading

Momentum from Friday's run-up wanes.

Updated from 4:10 p.m. EDT

Tech stocks ended a tug-of-war session with gains, while the broader market faltered as second-quarter earnings season swung into its third week.

After posting large gains Friday, the major market indices finished the day mixed. The

Dow Jones Industrial Average

TST Recommends

fell 18.06 points, or 0.2%, to 9266.51. The

Nasdaq

gained 4.64 points, or 0.3%, to 1735.34, while the

S&P 500

was down 2.16 points, or 0.2%, to 996.52.

In a choppy session, the 10-year Treasury note was down, pushing yields to the highest levels seen so far this year. Signs of economic improvement continue to pressure prices, which are now at lows not seen since November 2001.

On Monday, the yield was at 4.30%, as investors anticipated news that the government will announce plans to finance the budget deficit with a record sale of debt.

Earnings season has been positive, overall. Of the 319 companies in the S&P 500 that have reported quarterly earnings so far, two-thirds have topped analysts' estimates, giving investors confidence that the economy and corporate profits are poised for a turnaround.

Furthermore, S&P 500 earnings have risen 8.3% from last year, according to Thomson First Call. That figure includes estimates for companies that are still due to report. That's well above analysts' 5.3% estimate at the start of July and the record 6.2% in the second quarter. Third-quarter profit is expected to rise 13.6%, and fourth-quarter earnings may increase 21.6%, according to analysts' estimates compiled by Thomson First Call.

"It's a tug of war between rising interest rates and good earnings. The 10-year

yield is up 100 basis points from its lows," said Tom McManus, equity portfolio strategist at Banc of America Securities. "Now, admittedly, I didn't think it could be that much lower than 4%, but we went from 3.1% to 4%. Now we're at 4.25% and there are some who increased weightings to bonds, but I think that's like buying the Nasdaq at 3900 because its down from 5000. The 10-year is still overvalued."

But because higher interest rates increase the cost to borrow at many companies, McManus noted that companies that will benefit from a wider economic recovery, like manufacturers, have started outperforming those that don't, like consumer staples.

"You're seeing materials and industrials outperforming the health care and consumer staples and others that are not exposed to recovery," said McManus. "After all, are you going to buy more Hershey bars because the economy got better?"

According to several media reports,

MCI

(the former

WorldCom

(WCOEQ)

) is being investigated for allegedly defrauding its rivals by colluding with smaller carriers to reroute calls and avoid paying fees to the likes of

AT&T

(T) - Get Report

,

Verizon

(VZ) - Get Report

and

SBC

(SBC)

. The long-distance operator, which is set to emerge from Chapter 11, is being accused of a deception going back a decade, according to the reports.

Elsewhere in the sector, AT&T shares rose $1.78, or 8.7%, to $22.19 after CSFB upgraded the company to outperform from neutral based on valuation.

In other corporate news,

General Electric

(GE) - Get Report

shares slid 6 cents, or 0.2%, to $28.37 after the world's largest company by market value said it is selling its bond-insurance unit for $2.2 billion to a group of buyers led by mortgage insurer PMI Group,

The New York Times

reported.

Wal-Mart

(WMT) - Get Report

said U.S. same-store sales for July continue to be at the high end of its 2% to 4% growth range. Separately, the company said it is interested in buying some of Dutch retailer

Royal Ahold's

(AHO)

operations in South America. Shares fell a penny to $56.18.

Wall Street was awash in earnings, with announcements from manufacturing, travel, energy and health care companies.

Xerox

(XRX) - Get Report

reported a decline in revenue and essentially flat earnings, but still managed to beat analysts' estimates. Shares rose 44 cents, or 4.1%, to $11.17.

Northrop Grumman

(NOC) - Get Report

reported a rise in earnings that easily beat Wall Street estimates on strong revenue gains. The company also increased its earnings and sales guidance for full-year 2003. Shares gained $5.27, or 6.1%, to $92.37.

Hilton Hotels

(HLT) - Get Report

posted second-quarter earnings of 14 cents a share, matching expectations, while guiding 2003 earnings to the low end of expectations. Fulcrum upgraded the company to buy from neutral, but shares fell 8 cents, or 0.5%, to $14.93.

Royal Caribbean

(RCL) - Get Report

posted second-quarter earnings that topped estimates by 13 cents a share on a 10.2% year-over-year revenue increase. Shares rose $1.93, or 7.2%, to $28.78.

BMC Software

(BMC)

reported earnings that topped estimates by a penny, but guided second-quarter earnings below consensus estimates. The company said 2004 earnings are on track, and shares rose 16 cents, or 1.2%, to $13.86.

Openwave Systems

(OPWV)

, a telecommunications-software maker, narrowed its loss despite a decline in revenue. Shares rose 20 cents, or 7.3%, to $2.95.

Anadigics

(ANAD)

, a semiconductor company, missed Wall Street estimates by 3 cents, posting a second-quarter loss of 39 cents a share. Revenue was off 22% from the year-ago level, but shares gained 5 cents, or 1.4%, to $3.52.

MeadWestvaco

(MWV)

, the paper maker, announced second-quarter earnings that missed estimates by 14 cents a share, sending shares up 20 cents, or 0.8%, to $24.37.

Tyson Foods

(TSN) - Get Report

posted third-quarter earnings that missed estimates by a penny a share, but revenue was up 7.3% from the year-ago level. Shares gained 3 cents, or 0.3%, to $11.58.

Kellogg

(K) - Get Report

posted second-quarter earnings that topped estimates by 3 cents a share on revenue that grew 5.9% over the year-ago level. Shares gained 82 cents, or 2.4%, to $34.82.

Phelps Dodge

(PD) - Get Report

, a mining company, posted a second-quarter loss of 26 cents a share, matching Wall Street estimates. Shares slipped $1.16, or 1.3%, to $88.39.

Rohm & Haas

(ROH)

, a chemical company, posted second-quarter earnings that topped estimates by 2 cents a share, while guiding 2003 earnings above consensus. Shares fell 46 cents, or 1.3%, to $35.35.

SPX

(SPW)

, which makes industrial products, beat Wall Street expectations by a penny, while guiding 2003 earnings above current consensus. Shares gained $1.35, or 3%, to $46.

Humana

(HUM) - Get Report

announced second-quarter earnings that topped estimates by 8 cents a share, while guiding higher for the rest of 2003. Shares rose 84 cents, or 5%, to $17.67.

Triad Hospitals

(TRI) - Get Report

beat second-quarter expectations by 2 cents a share, while guiding 2003 and 2004 earnings in line with consensus. Shares gained $2.95, or 11.5%, to $28.52.

Alliant Energy

(LNT) - Get Report

released second-quarter earnings that missed analyst estimates by 12 cents a share, but said that 2003 earnings could top current estimates. Shares gained 22 cents, or 1.1%, to $19.82.

Entergy

(ETR) - Get Report

announced second-quarter earnings that were in line with expectations, and guided earnings higher going forward. Shares fell 31 cents, or 0.6%, to $50.59.

DTE Energy

(DTE) - Get Report

reported second-quarter earnings of 48 cents a share, on an 8.5% year-over-year revenue increase. Shares fell 31 cents, or 0.8%, to $36.94.

On the research front, UBS Warburg downgraded property and casualty insurers

Allstate

(ALL) - Get Report

,

PartnerRe

(PRE)

and

RenaissanceRe

(RNR) - Get Report

to neutral from buy.

Walt Disney

(DIS) - Get Report

shares rose 72 cents, or 1.7%, to $42.49 after Wit SoundView upped the company to outperform from neutral and raised its price target to $28.

In a last-ditch move, software provider

Internet Capital Group

(ICGE)

said Monday it will appeal a Nasdaq decision to delist the stock for failure to maintain a $1 price for 10 consecutive days. Shares gained 5 cents, or 9%, at 61 cents.

Overseas markets were higher, with London's FTSE 100 ending its session up 0.4% at 4149 and Germany's Xetra DAX finishing up 1.8% at 3418. In Asia, Japan's Nikkei gained 2% to 9839, while Hong Kong's Hang Seng rose 2% to 10134.

Crude oil for future delivery was lower in London, and the dollar was stronger against the yen but little changed against the euro.

On Friday, the Dow closed up 1.9% at 9284. The Nasdaq gained 1.7% to 1730, and the S&P 500 added 1.7% to 998.