Techs Up, Blue Chips Slip on Mideast News

Continuing violence in the Middle East sent stock prices reeling early Monday, but a rally in tech shares, and more positive economic signals, lifted the market off its lows.

The Dow Jones industrial average closed down 41.24 points, or 0.4%, at 10,362.70, recovering from an early drop of nearly 140 points.

Broader stock indicators were mixed. The Standard & Poor’s 500 index was down 0.85 of a point, or 0.1%, at 1,146.54. The Nasdaq composite index rose 17.27 points, or 0.9%, to 1,862.62 as tech shares rose in late trading.

Losers led winners by about 7 to 6 on the New York Stock Exchange and by 5 to 4 on Nasdaq. Trading was light in the wake of the Easter and Passover holidays. Most European markets were closed Monday for Easter.

Stocks started off sharply lower on concerns about rising tension between Israel and the Palestinians. But several major tech companies rebounded in the afternoon on growing sentiment that the sector was close to bottoming out.

“I think it was very impressive,” Larry Rice, chief investment officer at Fahnestock & Co., said of the afternoon comeback. “I don’t want to play down the events of the Middle East, but our market turned in a very strong closing. I think there’s some indication that the tech stocks are bottoming out.”

Leading semiconductor maker Intel rose 76 cents to $31.17, Cisco Systems rose 59 cents to $17.52 and Sun Microsystems gained 70 cents to $9.52.

Investors initially brushed off reports released Monday morning that gave more positive signs about where the economy was heading. But by afternoon, the economic news appeared to be taking hold. The Institute for Supply Management said its index of business activity rose more than expected in March to 55.6. An index above 50 signifies growth in manufacturing.

And the government said construction spending rose by a larger-than-expected 1.1% in February, the biggest jump in a year.

The upbeat economic news sent bond yields higher. The yield on the benchmark 10-year Treasury note climbed from 5.39% last week to 5.43% on Monday--its highest level since last May.

Among Monday’s highlights:

* Two widely held stocks were downgraded by major brokerages. Prudential Securities cut Ford to “sell” from “hold,” and Merrill Lynch cut Wal-Mart to “buy” from “strong buy.” Ford fell 76 cents to $15.73. Wal-Mart was down $1.74 at $59.56.

Other retailers fell along with Wal-Mart as Merrill Lynch warned that the entire retail sector may weaken. Sears fell $1.02 to $50.25, Nordstrom slid 92 cents to $23.58 and Limited lost 98 cents to $16.92.

* Oil-related shares extended their recent rally as traders bet Mideast unrest could lead to a crimp in oil supplies. Noble Drilling rose 88 cents to $42.27. France’s Total Fina Elf gained $1.13 to $77.73 in U.S. trading.

* Goodyear Tire slumped $1.87 to $23.70 after analysts warned that rising oil prices will boost the company’s raw material costs.

* Among the biggest movers, Digital River tumbled $7.71 to $7.10--a loss of 52%--after the maker of e-commerce software said Friday, when markets were closed, that quarterly earnings would be lower than forecast.

* Gold held above $300 an ounce, rising 60 cents to $303.20 and boosting mining stocks such as Newmont Mining, up $1.08 to $28.77.

* U.S.-listed shares of Israeli companies slumped, including Koor Industries, down 45 cents at $4.40; Check Point Software, down 90 cents at $29.50; and Gilat Satellite, down 20 cents at $3.27.

Market Roundup, C10-11