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Despite a Rally in Net Stocks Yesterday, Investors Pull Back in Early Trading

Like everyone else, Internet traders are waiting for the big meeting.

If Internet stocks were in rally mode on Monday with the

Federal Reserve

meeting a day away, why wouldn't they be rallying again today?

After all, nothing has really changed since Monday, except that the Fed's decision is now staring the market in the face. But it appears as if the mere sight of Fed Chairman

Alan Greenspan

running across the street to the meeting -- and

CNBC

, of course, focusing on his briefcase -- has given traders pause.

While the Fed is likely to announce an increase in the federal funds rate of 25 basis points around 2:15 EDT, sentiment is that the market has gone a long way to pricing in that rate hike and it is uncertain whether the Fed will go on an extended tightening cycle. And Net stocks weren't the only ones to rally in the face of the Fed, as the

Dow Jones Industrial Average

closed at a record high on Monday.

Net stocks were mixed early on today, though the sector had gone a long way toward erasing its early losses.

TheStreet.com Internet Sector

index was recently down 1.75, or 0.3%, at 569.96, rebounding from a low of 565.02 at the opening.

Charles Schwab

(SCH)

was trading slightly lower on news that the company sent new trading software to 40,000 of its best clients, according to

The Wall Street Journal

, and also plans to give them professional-style stock quotes later this year. The software was sent to Schwab customers with assets of at least $1 million, or those who make at least 48 trades a year. Schwab was down 3/8, or 1%, at 42 5/8 early on.

According to published reports, German media company

Bertelsmann

sold 7.2 million shares of

America Online

(AOL)

Aug. 19. Bertelsmann said it would use the money to further develop its own Internet business, which includes

AOL Europe

. The joint venture between AOL and Bertelsmann launched its subscription-free Internet service in Britain today. AOL was flat at 99 in early trading.

The quiet period for

Net2Phone

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was over today, and that means underwriters for the company's stock offering can come out with their ratings.

Bloomberg

reported that lead underwriter

Hambrecht & Quist

and

Deutsche Banc Alex. Brown

initiated coverage with buy ratings, while

Bear Stearns

began coverage with an attractive rating. Net2Phone, which allows users to place low-cost telephone calls over the Internet, also said it had entered into an agreement with

Compaq

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to offer its services to Compaq customers in Canada, Latin America, Japan and Asia-Pacific. Net2Phone was up 7 3/8, or 16%, at 54 1/2, while Compaq was off 1/16 at 24.

Also, shares of

E-Loan

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were higher after the company agreed to give

Bank of America

(BAC)

a 5% interest in E-Loan in exchange for Bank of America's stake in

CarFinance.com

. The deal calls for E-Loan to buy CarFinance.com for 2.88 million shares of E-Loan. E-Loan said it expects the transaction to be completed sometime in September. E-Loan was up 4 3/16, or 18%, at 27 9/16.