Investors sliced into Thursday's rousing gains in trading today, sending the major indices spinning lower. Already unconvinced by the record-breaking rally, they were further disappointed by last night's earnings warnings and this morning's weak

jobs report

.

Dip-buyers came in off the sidelines near midmorning, stemming the downward flow, but the selling had stepped up again at midday, and the major indices were flirting with earlier lows.

In early afternoon trading, the

Dow was off 158.22 points to 9759.83, the

Nasdaq Composite Index was down 51.3 to 1733.70 and the

S&P 500 was down 25.99 points to 1125.45. At their lows of the morning, the Dow was down 194 points, the Nasdaq was off 68 and the S&P was losing 26 points. Volume was moderate to active, and breadth was no good. Decliners were beating advancers by 21 to 10 on the Nasdaq, and by 19 to 8 on the

NYSE, or Big Board.

The lackluster jobs figures may have prompted a bit of optimism among traders earlier today regarding the

Federal Reserve's rate-cutting timetable. Indeed, a

Merrill Lynch

report issued this morning suggested the weak employment data could spur more aggressive, intermeeting cuts, and possibly a cut of as much as 50 basis points next week. The Fed intimated at its last policy meeting that it wasn't planning an intermeeting rate cut, but it also said it would be closely monitoring the economy.

"It could happen," Phil Dow, director of equity strategy at

Dain Rauscher

, said about a quick cut. "They did say they weren't planning an intermeeting cut, but you're dealing with a long period between (policy) meetings, and they've said they're watching the numbers diligently." The Fed next meets on May 15.

Some traders said the possibility of rate cuts next week could spur a rebound this afternoon and counseled close attention to the financials. Any rebound in this group could indicate stocks were on their way back. Indices that track the banks and insurance companies were lately adding to earlier losses, and the brokerage index was sinking further into the red. A look at some key financial-services indices, however, indicated that a financials rally wasn't in the offing yet: The

Philadelphia Stock Exchange/KBW Index

was lately down 2.5%, the

S&P Insurance Index

was falling 1.2%, and the

American Stock Exchange Broker/Dealer Index

was down 3.0%.

Only a few of the most "defensive," or safety, sectors were moving to the upside, including gold and tobacco, while biotech stocks continued on the rise. Earlier strength in pharmaceuticals and utilities had faded. Chips were the worst-performing group. After yesterday's 13% rally, the

Philadelphia Stock Exchange Semiconductor Index

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was off 5%.

The

jobs report showed a steep drop off in payrolls in March, with the major drag in the services sector, typically an important source of new jobs. Strength in average hourly earnings was also a negative, suggesting that the economy could slip into "stagflation" -- a nasty combination marked by sluggish growth and rising prices.

After recent improvements in consumer confidence and sentiment indicators, investors were hoping the report might show that the economy wasn't recession-bound after all.

Last night's earnings disappointments came from

optical-networker

Sycamore Networks

(SCMR)

, switchmaker

Extreme Networks

(EXTR) - Get Extreme Networks, Inc. Report

and technology services company

Agilent Technologies

(A) - Get Agilent Technologies, Inc. Report

, among others. Sycamore was lately down 20% to $7.30; Extreme was down 13% to $14; and Agilent was down 11% to $27.40.

The bulls and the bears are still locked in mortal combat, and the past few weeks have seen some violent swings in stock prices. But catalysts for continued gains are sorely lacking.

With almost a week past since the end of first quarter, yesterday's bulls may have been hoping all the warnings were done with -- that all the bad news was out. But that is far from clear. The timing of a recovery in earnings and the economy is still uncertain, and the pros say some clarity on a turnaround is what this market needs most.

The depth and breadth of recent selling and the momentum of yesterday's rally indicated to some that it was a bear market rally led by short-covering, or aggressive buying by investors who

short stocks. Investors short stocks -- borrow and then sell them -- when they think the stocks are headed down. If those borrowed shares make a sudden move to the upside, the shorts rush in and "cover" their positions, or buy back the shares before they get too expensive and incur losses.

Still, the bulls say yesterday's bounce is at least an indication that the market may have

successfully retested its lows and is finally beginning to build a bottom. Investors sold stocks furiously during March and the first few days of April, and some think the market can't go any lower. The Nasdaq is now 65% off its highs of last March; the S&P 500 is down 25% and the Dow is down 15%.

The Dow rose 402.62, or 4.2%, Thursday, its second-biggest point gain ever. The S&P 500 gained 4.4%, and the Nasdaq soared 8.9%, its third-largest percentage gain ever. The rally was fueled in part by an announcement from PC maker

Dell

(DELL) - Get Dell Technologies Inc Class C Report

, which said it expected to meet lowered first-quarter earnings targets, as well as by a lack of any new earnings warnings from market bellwethers. Unfortunately, Dell's announcement didn't tell investors anything about its earnings picture going forward.

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