Chip Selloff Clips Nasdaq

Updated from 4:15 p.m. EDT

Weakness in the semiconductor sector weighed down the broader tech universe Monday, and blue chips closed well below their session highs as sellers took control after midday.

After having been up by as many as 12 points earlier, the Nasdaq Composite fell 13.13 points, or 0.62%, to 2116.93. The Dow Jones Industrial Average rose 12.88 points, or 0.12%, to 11,103.55, giving up most of an 85-point gain from earlier in the session. The S&P 500 also stumbled from its best level, finishing up 1.86 points, or 0.15%, at 1267.34.

The Nasdaq was pressured by a 2.2% decline in the Philadelphia Semiconductor Sector Index, as components Marvell ( MRVL) and Advanced Micro Devices ( AMD) fell by 5.7% and 4.5%, respectively.

Ken Tower, chief market strategist with CyberTrader, said big tech names "remain the weakest link for the bulls. Particularly weak are the big Nasdaq stocks. It appears likely that we are heading for a test of the June lows by the weakest sectors."

As for the Dow, the biggest laggard was computer maker Hewlett-Packard ( HPQ), which lost 2.8% to $31.93. Chip heavyweight Intel ( INTC) dropped 2.1% to $18.18.

The 10-year note was unchanged in price and yielding 5.13%, while the dollar rose against the euro and fell against the yen.

Volume was light to start the week. About 1.28 billion shares changed hands on the New York Stock Exchange, with advancers outpacing decliners by a 5-to-3 margin. Volume on the Nasdaq was 1.60 billion shares, and winners trailed losers 8 to 7.

Second-quarter earnings season unofficially kicked off after the bell Monday with numbers from aluminum producer Alcoa ( AA), the first member of the Dow to report.

Alcoa posted second-quarter earnings of $744 million, or 85 cents a share, up from $460 million, or 52 cents a share, last year. Results included a 4-cents-a-share charge related to a labor agreement. Revenue came in at $7.96 billion for the quarter, below analysts' expectations.

Alcoa finished the session down 14 cents, or 0.4%, to $33.41 and was falling another 2.8% in the after-hours session.

"Everyone was on pins and needles ahead of the beginning of earnings season," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "There will be more surprises, and my concern will be guidance going forward. With higher interest rates and higher energy prices, combined with a slowdown of the economy, the guidance may be less optimistic."

Pepsi Bottling ( PBG), PepsiCo ( PEP) and General Electric ( GE) are also expected to report results this week.

Just days after the front-month oil contract hit a record above $75, crude was down 48 cents to close at $73.61 a barrel in Nymex floor trading. Gold dropped $8.70 to $626.10 an ounce, and silver lost 29 cents to $11.11 an ounce. Copper bucked the trend and finished up 3.5 cents to $3.58 a pound.

"The market completely ignored the fact that crude tumbled on Friday after hitting new record intraday highs," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "Crude is trading back below $74, although the technical pattern remains in a bullish trend."

On the economic front, the Commerce Department said wholesale inventories rose 0.8% in May as sales were up 1.6%. Economists expected a 0.5% rise after a 0.9% increase in April.

A number of mergers were making headlines as the week unfolded, including a couple in the energy space. WPS Resources ( WPS) is planning to buy Peoples Energy ( PGL) in a deal worth about $1.6 billion, and MDU Resources Group ( MDU) said it will acquire Cascade Natural Gas ( CGC) for $475 million, including debt.

Elsewhere, Heritage Property Investment Trust ( HTG), a real estate investment trust, agreed to be taken over by affiliates of Australia's Centro Properties Group for $36.15 a share. Heritage added 96 cents, or 2.7%, to close at $35.94.

Among analyst actions, UBS cut several mining stocks. The firm downgraded Harmony Gold ( HMY) to reduce from neutral, and both Gold Fields ( GFI) and Northgate Minerals ( NXG) to neutral from buy.

Harmony lost 1.1% to $15.82, while Gold Fields was higher by 0.3% to $23.58. Northgate fell 0.8% to $3.69.

Susquehanna Financial upgraded Yahoo! ( YHOO) to positive from neutral, while JPMorgan Chase raised Tyson Foods ( TSN) to overweight from neutral.

Yahoo! was higher by 35 cents, or 1.1%, to $32.85. Tyson Foods gained 83 cents, or 5.7%, to close at $15.28.

Stocks were higher in Asia, as Japan's Nikkei rose 1.6% to 15,553 and Hong Kong's Hang Seng added 0.9% to 16,604. European indices were moderately higher, with London's FTSE 100 up 0.1% at 5,897 and Germany's Xetra DAX higher by 0.4% at 5,706.

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