Investors Cash In on Rally in Tech Sector

Stocks retreated Friday as investors, still nervous about how companies will perform in the uncertain economic climate, cashed in on this week’s brief rally in the technology sector.

The slight setback that followed recent gains was no surprise, considering the mentality on Wall Street that compels traders to pocket profits after market upticks.

“I don’t think you’ll get any kind of sustainable rally until there is real, solid, hard evidence that the economy is stabilizing and profits are improving,” said James Tiller, a money manager at Dean Investment Associates in Dayton, Ohio.

The Dow Jones industrial average closed down 38.4 points, or 0.4%, at 10,512.78, after falling almost 119 points earlier in the session. For the week, the Dow eked out a gain of 96.11 points, or less than 1%.

Broader stock indicators also fell. The Nasdaq composite index dropped 21.05 points, or 1%, to 2,066.33, and the Standard & Poor’s 500 index fell 6.4 points, or 0.5%, to 1,214.35. For the week, the Nasdaq rose 37.26 points, or 1.8%, and the S&P; 500 was up 8.53 points, or less than 1%.

Chip stocks fell after the sector got a lift Wednesday and Thursday following comments by semiconductor makers and upgrades by Merrill Lynch. The sector was one of the first to fall last year, when the market’s downturn began, and signs of a revival have been short-lived.

“You had a nice run in the Nasdaq over the last couple of days, and now you’re seeing some profit taking,” said Richard A. Dickson, a technical analyst at Hilliard Lyons in Louisville, Ky.

Despite the market’s modest overall gains for the week, Dickson said investors shouldn’t read too much into the momentum that propelled stocks up and generally kept them there.

“There are no firm drivers in the market right now,” he said.

Chip bellwether Intel dropped 41 cents to $31.68. Other tech stocks were weaker as well. IBM dropped 62 cents to $108.18, Dell Computer fell 36 cents to $28.07, and Cisco Systems fell 20 cents to $20.05. Cisco reports earnings after the market closes Tuesday, and some analysts said the company may signal that profit forecasts for the current quarter are too high.

Trading was unaffected by a Labor Department report Friday that said the unemployment rate was unchanged at 4.5%. Analysts thought it would climb to 4.7% because of the economic slowdown. Businesses eliminated 42,000 jobs in July after a loss of 93,000 in June.

Friday’s mood on Wall Street was a shift from the optimism that ruled for much of the week, when traders sent the Dow up 1.4% on Monday through Thursday. The Nasdaq rose 3.4% during the same period.

Analysts warned Friday that companies still are having a tough time weathering the sluggish economy.

“Maybe we are starting to stabilize, but you still have a lot of skittishness any time the market pokes its head up,” said Steven Goldman, market strategist at Weeden & Co. in Greenwich, Conn.

Declining issues led advancers by 12 to 11 on the New York Stock Exchange and by 6 to 5 on Nasdaq in light trading.

Overseas, European markets were mostly weaker, and Japan’s Nikkei stock average dropped 1.3%.

Among Friday’s highlights:

* U.S. Treasuries slipped for a third straight session after the better-than-expected July employment report tempered hopes for Federal Reserve interest rate cuts later in the year. The yield on the benchmark 10-year Treasury note, which moves opposite of the price, climbed to 5.16% from Thursday’s close of 5.15%.

* Coffee futures fell more than 4% to a 36-year low in London trading. Rising supplies from Asia are overwhelming demand from processors during a lull in consumption of hot beverages. Coffee for September delivery fell $21 to $477 a metric ton. That was the lowest closing price since May 1965, according to the International Coffee Organization.

* Oil stocks fell on concern that the slowing world economy is crimping energy demand, making it more difficult for companies to meet sales and profit targets. Royal Dutch/Shell Group fell $1.71 to $55.49, Exxon Mobil lost 47 cents to $41.26, Chevron was off 37 cents at $90.68, and Texaco fell 29 cents to $68.83.

Market Roundup, C4-5