Stocks slip late Wednesday, investors cash in recent profits

AP Business WriterNEW YORK (AP) -- Investors dogged by lingering worries about the economy backtracked from a solid rally on Wall Street Wednesday and sold stocks sharply lower in late trading.

Analysts said investors were worried that stocks, which had healthy gains in the first three trading days of the new year, are now priced too high given the uncertainty about when a recovery will begin.

"What I hear over and over again is worries about valuation for the overall market, and particularly in technology. We have come very far, very fast ... and the upside potential is very limited," said Hugh Johnson, chief investment officer at First Albany Corp.

The Dow Jones industrial average recorded its third straight loss, falling 54.46, or 0.6 percent, to 10,094.09, according to preliminary calculations and after rising as much as 120 earlier in the session.

The broader market also closed lower. The Nasdaq composite index fell 10.85, or 0.5 percent, to 2,044.89, having climbed as high as 43 earlier. The Standard & Poor's 500 index declined 5.57, or 0.5 percent, to 1,155.14, giving up an earlier lead of 13.

The market's earlier gains were attributed in part to a seasonal occurrence called the January effect, when investors and money managers load up on stocks after having sold off shares for year-end tax purposes. But analysts warned that the market might not be able to sustain the upturn without concrete evidence that the economy is improving.

"It looks like it is getting harder to get buyers to step up at these levels," Johnson said.

The Dow's loss on Wednesday left the blue chips with a gain of 72 points, or 0.7 percent, for the year. But the Dow is up nearly 23 percent from its Sept. 21 low.

The tech sector has been even stronger with the Nasdaq advancing nearly 5 percent so far this year and jumping almost 44 percent from its post-attack low.

Likewide, technology fared the best Wednesday, benefitting from bullish comments made Tuesday by executives from Oracle and Cisco.

Oracle rose 98 to $16.73 after chief financial officer Jeff Henley told attendees of a Morgan Stanley conference Tuesday he was optimistic about 2002 as business conditions were improving.

Cisco traded higher most of Wednesday, following comments Tuesday from chief executive John Chambers, who said at a Salomon Smith Barney conference he expects the company to dramatically increase market share in its fiscal second quarter. The networker finished Wednesday down 10 cents at $20.85.

Many investors are betting that the tech sector will lead the market higher this year, and have given the sector a big boost so far this year.

"It was great to get decent news from Cisco and Oracle. To get some support for the technology side is very encouraging," said Thomas F. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif. "If companies can project decent earnings in the future, then the more and more Wall Street can say, 'The worst is behind us, and we are back in the growth mode."'

Investors punished stocks of companies that offered weaker prospects. Gateway fell 98 cents to $6.71 after sliding 25 percent Tuesday when it issued a revenue warning and Moody's Investors Service downgraded its debt rating to junk status.

Wal-Mart stumbled $1.44 to $56.40 after JP Morgan lowered its rating on the stock.

But investors also rewarded companies that posted better-than-expected profits. Homebuilder Lennar rose $1.73 to $48.75 after beating earnings forecasts by 12 cents a share.

Electronics retailer Best Buy gained 40 cents to $75.16 after raising its fourth-quarter earnings projection and reporting better-than-expected holiday sales, fed by strong demand for digital and video gaming products.

Declining issues matched advancers on the New York Stock Exchange, and volume was heavy.

The Russell 2000 index, which tracks the performance of smaller company stocks, fell 3.16, or 0.6 percent, to 494.74.

Overseas, markets were mixed Wednesday with Japan's Nikkei stock average finishing down 0.3 percent. In afternoon trading in Europe, Britain's FT-SE 100 closed down 0.4 percent, while France's CAC-40 advanced 0.4 percent and Germany's DAX index rose 1.0 percent.

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