After a dismal September, investors kicked off October with cautious optimism, on the lookout for bargains and hoping the new month brings an end to negative earnings announcements.

After some morning flip-flopping, the

Dow Jones Industrial Average was lately up, though well off session highs, while the

Nasdaq Composite Index was falling lower as the day progressed. The Comp suffered a tough month, shedding 12.7% in September as warnings from technology bellwethers such as

Intel

(INTC) - Get Report

and

Apple

(AAPL) - Get Report

caused serious damage to markets as well as investor psychology.

The Dow, which lost a more modest 5% in September, has been faring a bit better, though its components have not exactly been flawless on the earnings growth front. Tech initially got some spring in its step from

Banc of America's

call on the PC sector. Banc of America said this morning that the market had priced in all the bad news following Friday's selloff, which was prompted by Apple's earlier warning.

"The strength remains on the

New York Stock Exchange and continues to move away from tech," said Steven Goldman, market strategist at

Weeden

in Greenwich, Conn. "For those looking at tech, it's been a worrisome picture, but with seasonal factors starting next month, it should help ease some concerns. "

The strategist is fairly optimistic about the upcoming earnings seasons, saying "on an aggregate basis, earnings will probably come in alright." He also notes that interest rates are no longer rising and the economy appears to be stabilizing, which "bodes well for corporate earnings in the not-too-distant future."

On the economic front, September's

Purchasing Manager's Index came in this morning at 49.9 versus a forecast for a reading of 50.0 and last month's 49.5. A PMI above 50 signals expansion, while a reading below 50 indicates contraction.

The

Federal Open Market Committee meets tomorrow, but investors don't think

Alan Greenspan

& Co. will do anything to interest rates, and few think they will change their "bias" on the economy. These days, earnings are what really matter.

The market was still absorbing

Caterpillar's

(CAT) - Get Report

post-close announcement on Friday that it will

miss profit expectations by about 15% because of euro weakness and a softening North America construction industry, among other factors.

PaineWebber

cut its rating on the stock this morning, to neutral from attractive, and sliced its price target to 30 from 45. The stock was lately recovering from the battering it took in composite trading on the heels of the news, but was lately down 38 cents to $33.38 from its regular trading close.

"It's a new quarter, so new positions are being established. There's a feeling out there that you want to participate on these downswings as a buying opportunity. It's a positive signal that in spite of what Caterpillar preannounced, things are up," said Peter Coolidge, managing director of trading at

Brean Murray Foster Securities

.

"We're really in quiet period. We're not going to get third-quarter earnings for a week, and we're basically past preannouncements season. Energy prices remain a concern. The good news is, there seems to be a rotation. At least money is not fully leaving the market," he added.

Intel was lower on news it had canceled plans for a new low-cost computer chip and reportedly expects to delay the introduction of its next-generation processor, the Pentium IV. That doesn't bode well for the company or the industry at a time when Wall Street is worried about slowing PC and chip demand. Investors have been hacking away at Intel's share price since the company warned of an earnings shortfall in mid-September.

TheStreet.com

wrote Friday about the plans to

cancel the cheap chip.

There were more bad warnings than good warnings on the earnings front.

Energy company

Dynegy

(DYN)

this morning said it expects to beat earnings-per-share estimates for the third quarter, with 55 cents vs.

First Call's

50 cent forecast. But plastic and resins supplier

Schulman

(SHLM) - Get Report

announced it expects fourth-quarter earnings to miss analyst estimates by a full 50%. Schulman blamed the shortfall on higher plastic feedstock costs and a weaker euro.

In merger news,

FleetBoston

(FBF)

agreed to buy

Summit

for $7 billion in stock, giving it New Jersey's No. 1 market share. That's a more than 40% premium to its price before the rumors Tuesday and news Wednesday that they were in talks pushed Summit's shares to new levels.

TheStreet.com

wrote about the deal in a

separate story. Fleet was falling 4.2% on active volume.

And merger mania in the power sector continues, with

Northwestern

(NOR)

power company announcing plans to buy

Montana Power's

(MTP) - Get Report

energy distribution unit.

Elsewhere in market-moving news,

Ford

(F) - Get Report

cut the price of most of its models sold in Britain by 5% to 13%, the company said. The company decided to cut prices in order to encourage more retail buying in the U.K. and stabilize sales there. The stock was lately rising 3.2%.

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Market Internals

Breadth was negative, particularly on the Nasdaq, on moderate volume.

New York Stock Exchange: 1,296 advancers, 1,418 decliners, 468.2 million shares. 73 new 52-week highs, 37 new lows.

Nasdaq Stock Market: 1,555 advancers, 2255 decliners, 794.9 million shares. 72 new highs, 90 new lows.

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Most Active Stocks

NYSE Most Actives

  • FleetBoston (FBF) : 8.4 million shares.
  • Nortel (NT) : 8.3 million shares.
  • Liberty Media (LMG.A) : 6.8 million shares.

Nasdaq Most Actives

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Sector Watch

Recent strength in defensive sectors like drugs, tobacco and transports was slipping today, with the

American Stock Exchange Pharmaceutical Index

1.8% lower, the

American Stock Exchange Tobacco Index

down 0.2%, and the

Dow Jones Transport Average

1.9% lower.

Energy stocks continued to reap the benefits of high oil prices, with the

American Stock Exchange Oil & Gas Index

1.1% higher.

In tech, semiconductor stocks were strong, but biotechs and Internet stocks were taking a beating. The

Philadelphia Stock Exchanage Semiconductor Index

was down 0.6%, while the

Nasdaq Biotechnology Index

was 5.1% lower and the

TheStreet.com Internet Sector

index lost 3.1%.

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Bonds/Economy

Treasuries are mixed, with short-maturity issues holding their ground while long-maturity issues slump in response to rallying oil prices.

A smaller-than-expected increase in the

Purchasing Managers' Index

(

definition |

chart |

source

) is positive for the bond market, particularly after the

Chicago Purchasing Managers' Index

(

definition |

chart ) last week experienced a much larger-than-expected rise. The national index rose to 49.9 in September from 49.5 in August.

But while the PMI affirms that economic growth is proceeding at a slower pace, rising oil prices pose an inflationary threat, prompting bond investors to demand higher yields on long-maturity issues.

The benchmark 10-year Treasury note was lately down 7/32 to 99 13/32, and yielding 5.83%.

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International

European markets were higher at midsession.

In London, the

FTSE 100

was down 9.7 to 6284.5..

Across the channel, the

CAC 40

in Paris was 82.61 higher to 6349.24. The

Xetra Dax

in Frankfurt gained 106.95 to 6905.07.

After voters in Denmark decided not to join the euro last week, the single currency was trading lower at 0.8787.

Asia's major markets continued to feel pressure Monday from last week's Apple-inspired tech shakeout, but Japan's

Nikkei 225

was able to erase early losses to finish in the plus column.

The Nikkei closed up 155.3 points, or 1%, at 15,902.5, after being down over 1% earlier in the session.

In Tokyo currency trading, the dollar was little changed at 108.17 yen. The greenback was lately trading higher at 108.79 yen.

Hong Kong's equity markets were closed for a holiday Monday, but South Korea's

Kospi

index tanked 24.0 points, or nearly 4%, to 589.2, as technology shares tumbled. Taiwan's

TWSE

index finished down 2.6% at 6,024.1, even though the government pledged 500 billion Taiwanese dollars ($16 billion) to stabilize the market if necessary.

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