US stocks: Blue Chips gain on upbeat data

10.30 am

NEW YORK - Blue-chip stocks rose while the technology sector edged lower on Thursday (NY time) as investors juggled better-than-expected economic data and dismal earnings from chip gear giant Applied Materials Inc.

"People continue to get a little bit more optimistic every day as long as we don't get bad economic data, or earnings or some terrorist attack or this Afghanistan thing suddenly turns," said Uri Landesman, chief investment officer with AFA Management Partners.

The broad market finished flat. Oil companies' stocks continued to slide as crude oil prices slumped again to their lowest level in more than two years amid squabbles between the Organization of Petroleum Exporting Countries, or Opec, and its rivals over oil-output curbs.

But airline and hotel stocks rose, continuing to rebound after Monday's plane crash in New York. UAL Corp. climbed 6.9 per cent after its unit United Airlines said it will become the first major US airline to put stun guns in every cockpit in its fleet following the Sept. 11 attacks on the United States.

The blue-chip Dow Jones industrial average ended up 48.78 points, or 0.50 per cent, at 9,872.39. The broader Standard & Poor's 500 Index edged up 1 point, or 0.09 per cent, to 1,142.24. The technology-laced Nasdaq Composite Index was off 2.62 points, or 0.14 per cent, at 1,900.57.

In the latest economic data, manufacturing activity in the US mid-Atlantic region contracted for the 12th month in a row in November, but the pace of deceleration slowed, according to a survey released by the Federal Reserve Bank of Philadelphia.

Earlier, Washington said the number of Americans filing weekly jobless claims dropped unexpectedly for the third straight week, but the number of workers staying unemployed was up 18 per cent since early September.

Applied Materials fell US$1.62 to US$39.09 after its profits sank 97 per cent, and left its mark on other chip stocks.

"Obviously, we had a great week so far, and we are consolidating some gains and Applied Materials is putting a little bit of a damper on the market," said John Forelli, senior vice president at Independence Investment LLC, which oversees US$20 billion. "But investors are starting to get confident that we are not going to retest the old lows."

Eastman Kodak Co. jumped US$1.34 to US$28.62, its 4.9 per cent gain contributing a big chunk of the rise in the blue-chip Dow. The photography giant will realign its operations to cut spending and boost lagging profits.

Exxon Mobil, the No. 1 US oil company and a Dow stock, fell US$1.51 to US$37.19. Oil prices sank after Opec raised the stakes in a game of high-risk poker with rival oil producers. The market reacted sharply to remarks from Kuwait's oil minister expressing opposition to Opec output cuts without non-Opec cooperation.

The Philadelphia oil services index sank 10.59 per cent, reflecting weakness in companies like Schlumberger Ltd., down US$2.92 to US$43.18.

Wall Street took heart from news of more progress in the US-led campaign in Afghanistan. Washington said it was "tightening the noose" around Osama bin Laden in Afghanistan, as thousands of his Arab troops and Taleban protectors were surrounded in the northern city of Kunduz, facing a fight to the death.

Wall Street's largest brokerage houses fell on concerns strength in their stocks had outpaced their profit outlooks. The SEC Broker-Dealer index fell 2.34 per cent. The index has risen more than 46 per cent since hitting a recent trough of 336.17 in the aftermath of the Sept. 11 attacks.

"We have been going like a house on fire," said Larry Wachtel of Prudential Securities. "There is good news in terms of the military, and the price of oil falling constitutes a tax cut for consumers. All these things are wonderful, but we are now overbought."

Dow component IBM rose 40 cents to US$114.75. The No. 1 computer maker said while demand for new technology products may be waning, its industry-leading services business has picked up the slack.

Hopes for an economic snapback next year, fueled by sharp interest-rate cuts by the Federal Reserve and a hefty stimulus package by Washington, have lifted stocks well off from lows hit after the Sept. 11 attacks. But investors are still wondering about the sustainability of the market's rally because the economy and corporate earnings continue to struggle.

"People think, barring some catastrophe, we have more potential for an upswing than some massive retreat," said George Rodriguez, senior vice president of equities at Guzman & Co. "The sense is there has been economic stimulus, and it's percolating and working its way into the market. The question is: "How close until we see it helping the economy?' I'm still waiting."

Homebuilders fell for a second day, as investors took profits from the group's recent rally. Also a big drop in 10-year Treasury bond prices ignited fears of higher mortgage rates, analysts said. The S&P homebuilding index fell 5.64 per cent.