Tech Leads a Broad Recovery From Recent Weakness

The demise of USA-Lycos has sparked Net shares, and the broader market is benefiting from a bond turnaround.
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The apparent unraveling of

USA Networks'

(USAI) - Get Report

takeover bid for

Lycos

(LCOS)

has put some of the "wham" back in the "wham-a-lam-a-Net stocks" today. Bellwether tech names were also back in fashion after last week's disrobing.

Blue-chip proxies struggled initially, but as the bond market overcame its early skittishness, the

Dow Jones Industrial Average

and the

S&P 500

have moved higher.

The Dow lately was up 48 to 11,080 after an early decline as low as 10,966.58. The S&P 500 was up 6 to 1351 vs. an early low of 1336.22.

The

Nasdaq Composite Index

was up 31 to 2535 while

TheStreet.com Internet Sector

index was higher by 8 to 622.

Lycos, lately up 9.3%, was giving the DOT its biggest lift. Other Net bellwethers, such as

America Online

(AOL)

, up 6%, were following suit.

As the reported dismantling of the USA Networks-Lycos deal was driving Net stocks, the group was further enlivened by news

General Electric's

(GE) - Get Report

NBC

unit is merging some of its Internet assets with

Xoom.com

(XMCM)

to create

NBC Internet

. Xoom.com was up 9.9%, while

CNet

(CNET) - Get Report

was up 11.6%;

Snap.com

, a joint venture between CNet and NBC, is also part of the deal, which

TheStreet.com

examined in more detail in a

story this morning.

Among Nasdaq-traded tech bellwethers,

Cisco

(CSCO) - Get Report

and

Dell

(DELL) - Get Report

were setting the pace, the latter aided by an upgrade from

BT Alex. Brown

to buy from market perform. The

Nasdaq 100

was up 1.1%.

In

New York Stock Exchange

trading,

IBM

(IBM) - Get Report

was up 1.7% and

Motorola

(MOT)

was higher by 3.3%, helping lift the

Morgan Stanley High-Tech 35

2%. Meanwhile,

Compaq

(CPQ)

was higher by 5.3% after announcing a reduction in the number of its distributors.

As tech stocks recovered this morning, drug makers -- another high growth, high P/E group -- continued to suffer a bit today; the

American Stock Exchange Pharmaceutical Index

was down 0.7%.

Elsehwere on the sector front, neither energy nor banking stocks were being aided much by reports of merger activity among players in the respective groups.

The

Russell 2000

was up 5 to 441 despite continued weakness in gold stocks. The

Philadelphia Stock Exchange Gold & Silver Index

was down 4.8%. (In the shameless self-promotions department: This reporter looked deeper into developments in the gold market on

Friday.)

In NYSE trading, gainers were leading declining stocks 1,741 to 1,110 on 432 million shares. In

Nasdaq Stock Market

activity, gainers were leading 2,034 to 1,651 on 467 million shares.

The Benign Effect of Rising Rates

Despite gains thus far, many traders say the equity market remains captive to developments in fixed-income, noting there's a heavy economic calendar this week and the

Federal Open Market Committee

meeting May 18. Indeed, the Dow and the S&P did not move higher this morning until the bond market overcame its early reluctance.

The price of the 30-year Treasury bond was up 16/32 to 92 16/32, its yield receding to 5.78%. (For more on the fixed-income market, see today's early

Bond Focus.)

Alan Skrainka, chief market strategist at

Edward Jones

in St. Louis, agrees with the majority that rates will remain a focal point for trading. But he is less concerned than some peers about the recent uptick.

"I think, realistically, the

Fed

is in a pretty good position," Skrainka said. "They don't have to raise rates because the market is doing it for them. I think what we'll see is a self-correction taking place where rates go up, which cools the economy and helps inflation stays low. I'm not overly concerned -- rates are still reasonably low, and not high enough to snuff out the bull market."

The strategist breaks with some of the current thinking on Wall Street on another subject: the prudence of favoring cyclical and other value stocks vs. growth, particularly tech. Still, he agrees the broadening of interest is healthy.

"I'm leery of predictions that say, 'Now we're getting a sector rotation, it's time to sell

MCI WorldCom

(WCOM)

and buy

Caterpillar

(CAT) - Get Report

,'" he said. "My reaction is, in the long run moving data is a much better business than moving dirt. You want to make sure you're diversified, but there's never a good time to buy a bad business. I just think the ruling discipline should be to buy growth stocks at a smart price."

Moreover, the recent "compression" in the growth stocks has created opportunities, the strategist said. "You have the opportunity to step up and buy some companies trading at a more reasonable price," he said, echoing what appears to be the broad sentiment on Wall Street thus far today.

In addition to WorldCom, Skrainka recommends

AT&T

(T) - Get Report

and Cisco; Edward Jones has done no underwriting for any of the tech giants.

"I think the AT&T-

MediaOne

(UMG)

deal highlights once again the tremendous explosive growth in the communications side of business and we'll continue to see the center of gravity shift away from PC-related companies," he said. "Each day it seems the market provides new evidence of that shift. Even

Microsoft

(MSFT) - Get Report

investing in

Nextel

(NXTL)

illustrates the point."

Monday's Midday Movers

By Heather Moore
Staff Reporter

As noted above, community Web site Xoom.com was zooming up 7 7/16, or 9.9%, to 82 5/8 after agreeing to a three-way merger with CNet's Snap.com Internet service and the Web assets owned by General Electric's NBC network. The new company, called NBC Internet, will be the seventh-largest Web site and the first public Internet company integrated with a major broadcast network. GE was up 13/16 to 110 11/16; CNet was up 13 3/16, or 11.6%, to 127 3/16.

Elsewhere in Netland, Lycos was up 8 5/16, or 9.3%, to 97 15/16 following a report in

The Wall Street Journal

saying that USA Networks most likely will abandon its three-month-long bid for the portal company after determining that it probably can't win the approval of Lycos' shareholders. USA Networks was up 3/16 to 35 17/32.

In other news:

KBW

, a holding company for

Keefe Bruyette & Woods

, an investment bank that specializes in commercial banks and thrifts, pulled its planned 4.7 million-share IPO, according a person close to the deal. The source, who wished to remain anonymous, said the offering was canceled amid speculation that KBW is considering a buyout, merger or other option.

Lexmark

(LXK)

was up 5 1/4 to 124 1/4 after the printer maker's CEO told

CNBC

that Lexmark's business strategies have enabled it to post improvements in its financial results.

Protein Design Labs

(PDLI) - Get Report

was up 2 1/4, or 13.4%, to 19 1/8 after

PaineWebber

upgraded it to buy from attractive.

Republic New York

(RNB)

was giving back 1 13/16 to 68 3/16 after Friday's 14% pop on talk it would be acquired by

HSBC Holdings

. Today, HSBC confirmed it plans to buy Republic and

Safra Republic

, a Luxembourg-based bank in which Republic has a 49% stake, for $10.3 billion in cash.

Rocky Mountain Chocolate Factory

(RMCF) - Get Report

was up 2 13/32, or 73.3%, to 5 11/16 after

Whitman's Candies

said it began a $5.75-per-share tender offer for all shares of the chocolate retailer.

Saga Petroleum

(SPM)

was up 3 13/16, or 34.3%, to 14 15/16 on word

Norsk Hydro

(NHY)

launched a bid to acquire the exploration-and-production company at a 35% premium. Norsk Hydro was up 5/16 to 45 9/16.

Earnings/revenue movers

Autocam

(ACAM) - Get Report

was up 1 5/8, or 16.3%, to 11 5/8 after reporting third-quarter earnings of 26 cents a share, beating the three-analyst estimate by 4 cents but falling below the year-ago 38 cents.

Comcast

(CMCSK)

was up 1 7/16 to 40 9/16 after posting a first-quarter profit of 13 cents a share, reversing the year-ago loss of 11 cents and topping the three-analyst forecast by 2 cents.

Tarrant Apparel

(TAGS) - Get Report

was down 4, or 8.9%, to 41 1/8 even after reporting first-quarter earnings of 30 cents a share, beating the six-analyst view by a penny and the year-ago figure by a dime.