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With the release of more mixed earnings news and an analyst downgrade on the chip sector, investors poured cold water on last week's white-hot rally today. For the second session in a row, the major stock market indices finished down. The

Nasdaq Composite Index fell 104.1 points, or 4.8%, to 2059.30, while the

Dow Jones Industrial Average lost 47.62 points, or 0.5% to 10532.23.

"We were expecting a selloff on the Nasdaq today," said Peter Coolidge, managing director of trading at

Brean Murray Foster Securities

. "Whether this is a pause in the rally or a repeat of what happened in January remains to be seen." Back in January, the Fed shocked the market with an intermeeting rate cut, sparking an aggressive rally that was met by a steep selloff.

In the wake of the

Federal Reserve's surprise interest-rate cut last Wednesday, the market averages registered staggering gains. But on Friday, investors began to take their winnings off the table. The Nasdaq ended the week up 10.3%, as investors renewed faith in tech stocks, and the Dow rose 4.5% along with it.

Picking up where they left off Friday, investors again skimmed off the top. Over the past few months, aggressive rallies have been followed by vicious selloffs, leading some market experts to worry about the magnitude of the past week's run-up. The fact that the recent pullback has not been too extreme has encouraged them.

"I'm not concerned," said Matt Johnson, head of Nasdaq trading at

Lehman Brothers

. "We're up more than 30% on the Nasdaq, since the index hit bottom. So a 5%giveback isn't bad." Trading volume was low today, indicating a lack of conviction behind the selloff. What's more, "people are buying into the weakness," Johnson said, "which suggests that they haven't changed their views on the marketplace."

Semiconductor stocks -- the key beneficiaries of last week's rally -- were the chief targets of today's move down on the Nasdaq. This morning,

Merrill Lynch

analyst Joe Osha downgraded



and a three other chip stocks to near-term neutral from near-term accumulate.

The other stocks on his list were

Applied Micro Circuits






Vitesse Semiconductor



"There is no identifiable evidence that the semiconductor recovery is closer at hand," Osha wrote in his research report today. The analyst noted that, at a price-to-earnings multiple of 50, Intel is still expensive. Shares of Intel closed down 6.5% to $30.32 today.

Whether the chip sector is on its way to a recovery has been a topic of great debate among Wall Street analysts. Less than two weeks ago,

Salomon Smith Barney

analyst Jonathan Joseph called a bottom in the sector, only to be countered by

Lehman Brothers

analyst Dan Niles. On the heels of Osha's note today, the

Philadelphia Stock Exchange Semiconductor Index

was off 5.3%.

As investors rotated out of the riskier positions they re-inhabited last week, shares of large-cap tech issues dragged on the market.

Juniper Networks








all finished lower.

Shares of



plunged 10.5% to $17.68 after Lehman downgraded the stock to buy from strong buy, noting that the present quarter could be weak. The investment firm also said that Oracle's valuation, at 17.8 times earnings, is well above historical norms. In recent weeks, investors have picked up some Nasdaq stocks based on the belief that they couldn't get much cheaper. Now, they are beginning to think again about fundamentals such as price-to-earnings multiples.

In the meantime, safety stocks registered gains today. Looking at the sectors driving today's action, drug and tobacco stocks rose at the expense of retail and financial issues.

Philip Morris






Procter & Gamble


all finished up on the day.

Oil stocks got a boost from the news that



reported earnings that rose sharply on strong oil and natural gas prices. Shares of Exxon closed up 3.3% to $88.

As stocks fell today, bonds rebounded off of last week's selloff. In late-afternoon trading, the two-year note gained 6/32 to 100 6/32, moving the yield down to 4.134%. The benchmark 10-year note rose 24/32 to 98 17/32, yielding 5.192%, while the 30-year Treasury bond was up 29/32, to 94 29/32, moving the yield down to 5.732%.

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Euphoria over last week's U.S. rate cut and rally was on the wane in Europe. London's

FTSE 100

closed off 8.5 to 5871, the Paris

CAC 40

finished behind 53 to 5397 and Frankfurt's

Xetra Dax

ended lower 76.5 to 6052.

The euro was lately trading at $0.8997.

A hearty early rally in Asian markets lost its gusto into the close, as prospects for weakness on Wall Street deflated optimism that a new reformist candidate in the race for prime minister would drum up widespread buying. The major indices closed lower overnight, with Tokyo's

Nikkei 225

down 50.1 to 13,715.6 and Hong Kong's

Hang Seng

136.6 lower to 13,311.5.

The dollar was trading at 121.77 yen.

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