Blue Chips Rally as Tech Issues Dip Again

Blue-chip stocks reversed steep losses and posted their biggest rise in a month Friday, ending a lackluster week on Wall Street that saw all three major stock indexes lose ground.

Technology shares notched small losses, but the weakness was enough to push the technology-heavy Nasdaq composite index to its sixth straight losing session and placed the index at its lowest close in four months.

Analysts said Friday’s whipsawing markets are an indication that stocks won’t rally convincingly until corporate earnings make a comeback.

“Earnings across the board are punk, especially in the tech sector,” said Mark Coffelt of First Austin Capital Management. “Until there’s evidence of an economic and earnings turnaround, stocks are going to be in for tough sledding.”

The Dow Jones industrial average climbed 117.69 points, or 1.1%, to 10,416.25, after losing almost 100 points early on. Dow members such as Alcoa, up $1.12 to $37.01, 3M, up $2.33 to $109.85, and Caterpillar, up $1.30 to $53.65, helped the blue-chip gauge post its biggest rise since July 12. Still, the Dow lost 0.9% for the week.

The Nasdaq composite index dipped 6.85 points, or 0.4%, to 1,956.47. Software makers Oracle, down 83 cents to $15.16, and Siebel Systems, off $1.48 to $28.29, dragged on the index after Goldman Sachs cut its earnings estimates, citing a possible decline in future sales as European economies lag. It was Nasdaq’s lowest close since April 17 and contributed to a 5.3% loss for the week.

The broader Standard & Poor’s 500 index advanced 6.73 points, or 0.6%, to 1,190.16. The benchmark index suffered a weekly loss of 2%.

Advancing issues outnumbered decliners by 3 to 2 on the New York Stock Exchange, but falling stocks beat out gainers on Nasdaq 10 to 9. Trading was light.

The market rebounded in the afternoon as investors juggled fears of shrinking corporate profits with hopes for more interest rate cuts by the Federal Reserve. The July producer price index fell at its fastest rate in nearly eight years, indicating growth was still weak and clearing the way for more monetary easing by the central bank.

“Investors are waiting for another catalyst, whether it be the Fed or a turnaround in the economy,” said Guy Truicko, a portfolio manager at Unity Management. “We are waiting for evidence that the ship is turning.”

The PPI, a closely watched gauge of wholesale inflation, plunged 0.9% last month after falling 0.4% in June, the Labor Department reported. Excluding the more volatile food and energy sectors, the core PPI rose 0.2% in July after posting a 0.1% increase in the previous month.

The tame inflation numbers should help ease inflation concerns for the Fed as it heads into its policy-setting Federal Open Market Committee meeting Aug. 21, economists said.

Futures contracts traded on the Fed’s overnight bank lending rate show market players fully expect to see another quarter-percentage point cut in August. They see a high chance of another such cut at the FOMC’s October meeting.

Among Friday’s highlights:

* Government bonds rallied on the PPI report. The yield on the two-year Treasury note fell to 3.69% from Thursday’s close of 3.73%. The two-year yield was at 3.91% a week ago. The benchmark 10-year Treasury note fell to 4.98% from 5.03% Thursday.

* BEA Systems dropped $1.72 to $18.50 after investment bank Credit Suisse First Boston cut its target price on the stock and lowered estimates for the second half of the year, citing fallout from the U.S. and European economic slowdown.

* Dow member Procter & Gamble rose $1.17 to $71.87. British antitrust regulators approved P&G;’s proposed $4.95-billion acquisition of Clairol, which will be the biggest purchase in the No. 1 U.S. household products company’s history.

* Pixar rose $2.24 to $42.54. The animation company posted a second-quarter profit that beat the estimate of analysts polled by Thomson Financial/First Call.

* Polaroid shares rose 1 cent to $1.46 after the company won a one-month extension of waivers on loan violations and $10 million in additional financing as it seeks to avert bankruptcy protection. Two company-owned properties in Massachusetts were pledged as security against bank and bond debts, providing bondholders with some type of collateral for the first time.

* Willamette Industries board, complete with three new dissident members nominated by hostile suitor Weyerhaeuser Co., signaled the timber company does not plan to put itself up for sale any time soon. The reconstituted board agreed to maintain the company’s strategy of acquiring timber companies rather than selling itself.

Willamette shares slipped 18 cents to $48.95, just off a 52-week high of $50.65, and Weyerhaeuser shares rose 20 cents to $57.95.

Market Roundup, C4