Afternoon rebounds in both blue chips and technology stocks pared big losses yesterday as bargain-hunting seemed to diminish investor fear that rising interest rates will crimp corporate profits.
The Dow Jones industrial average fell 84.30 points, or 0.79 percent, to end the day at 10,542.55. The blue-chip index had been down more than 257 points before the rally took wing about 2 p.m.
The Nasdaq composite index was down by nearly 218 points, or 6.4 percent, before the turnabout in trading left it with a loss of 26.19 points, or 0.77 percent. The closely watched technology index closed at 3,364.21.
The Standard & Poor's 500 index slid 6.23, or 0.4 percent, to 1,400.72.
Market analysts believe that the tech-stock sell-off that presaged the late-day rally began because investors feared that the earnings of these fast-growing firms will suffer as the Federal Reserve forges forward with a campaign to raise interest rates in order to slow the galloping U.S. economy. If those earnings slow, the high prices the stocks achieved cannot be justified by any measure, analysts say.
"These stocks are still expensive," said Gil Knight, a principal with Allied Investment Advisors in Baltimore, who also manages the firm's small-capitalization stock fund.
At its nadir for the day, the Nasdaq hit its lowest point since November, when the index hit an intraday low of 3,124.77. But at that time, the Nasdaq was headed higher: It ended 1999 with a gain of 86 percent, the steepest annual climb in history for any major stock index, and peaked at 5,048.62 on March 10.
Even so, some important technology stocks, such as networking equipment maker Cisco Systems Inc., were able to rebound from early losses yesterday to post a gain for the day. Cisco fell steeply, but ended the day up $1.8125 at $55.25.
A big loser was General Motors Corp., which dropped by $9.5625 per share, or 11 percent, to close at $77.375, its largest one-day loss since the October 1987 stock market crash. GM shares dropped after the automaker announced that it would accept only 25 percent of the common shares investors wanted to swap for the Class H shares of its Hughes Electronics Corp. subsidiary. That announcement left too many GM common shares in the hands of traders, putting downward pressure on the parent company's stock, analysts said.
Hughes surged $6.875 to $96.75.
Over the longer term, economists and institutional investors say, the main concern remains the Fed, which has raised short-term rates six times since late June, including a half-point boost last Tuesday. Continued interest-rate increases will likely wreak havoc on stocks, analysts say.
With the Nasdaq having been sliding, investors and economists are trying to figure out just how the overall economy is faring - since that, in turn, could help them deduce when the Fed might finally decide to hold the line on interest rates. But recent reports have offered mixed messages on whether the economy is slowing, or whether inflation has finally become a problem. On Thursday, the Commerce Department will release a report that makes a preliminary estimate on the growth rate of Gross Domestic Product in this year's first quarter.
More rate increases are in the offing, most economists believe. The Fed's policy-making arm next meets in June and in August."I think that people are finally waking up to the fact that the Fed means business," said Allied Investment's Knight.
Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, fell 8.03 to 471.67; the Wilshire 5000 index slumped 87.40 to 12,893.34; the American Stock Exchange composite index tumbled 10.40 to 903.63; the New York Stock Exchange composite index skidded 6.43 to 634.92; and the S&P; 400 mid-cap index lost 6.48 to 464.14.
The Sun-Bloomberg Maryland index of the top 100 Maryland stocks fell 6.48 to 223.53, led lower by Aether Systems Inc., off $10.625 to $117.9375, and Ciena Corp., which declined $8.625 to $107.875.
Declining issues outnumbered advancers by a 3-to-2 margin on the New York Stock Exchange, where volume totaled 869 million shares. Nasdaq decliners outnumbered advancers by slightly more than 2-to-1 in trading of 1.58 billion shares.
General Electric Co., the largest U.S. company by market value, fell for a fourth day, losing $1.875 to $50, after being down 6 percent.
Many fledgling technology companies were knocked lower in April, when the Nasdaq sustained its initial wave of selling. Yesterday, however, investors focused their ire on some of the most established names in technology. Oracle Corp. fell $2.25 to $67.8125; Microsoft Corp. lost 87.5 cents to $64.1875; and Motorola Inc. slid $2.0625 to $87.875.
Dell Computer Corp. slid $1 to $45.9375.
Intel Corp. erased a 5.5 percent loss to close on a 50-cent gain at $118.375.
Among biotechnology stocks, Protein Design Labs Inc. slid $6.9375 to $125.6875, and Idec Pharmaceuticals Corp. slumped $7.9375 to $61.9375.
Oilfield services company Schlumberger Ltd. fell $5.625 to $73.5625.
Exxon Mobil Corp., the world's largest oil company, gained $1.5675 to $83.3125. Texaco Inc., the No. 2 U.S. oil company, slipped 18.75 cents to $57.0625.
Performance Technologies Inc. plunged $16.8125, or 60 percent, to $11.4375. The maker of communications equipment said late Friday that it will likely report second-quarter earnings that will miss estimates due to lower-than-expected orders.
Peco Energy Corp. gained $1.75 to $45.1875, and Unicom Corp. rose $1.4375 to $42.8125.
Vignette Corp., a maker of customer-service software for American Express Co., among others, sank $8.9375 to $34.875 after saying it would buy OnDisplay Inc. for about $1.7 billion in stock.
OnDisplay gained 87.5 cents to $54.125.
Overseas, Japan's Nikkei stock average fell 2.8 percent as leading technology stocks tumbled; Germany's Xetra DAX index lost 1.1 percent; Britain's FTSE 100 slipped 0.2 percent; and France's CAC-40 dropped 1.6 percent.
The Associated Press and Bloomberg News contributed to this article.