Manufacturing better
but Dow rally fizzles

The blue-chip index, ahead
232 earlier, ends up just 48
despite an upbeat economic report

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By Lisa Singhania
Associated Press

NEW YORK >> Wall Street's hopes for a back-to-school turnaround fizzled today after a rally sparked by better-than-expected manufacturing data soured in the last hour of trading, resulting in only a minimal lift to blue chips.

Investors once again punished the beleaguered technology sector on skepticism about its future prospects, while expressing displeasure about an announced $25 billion merger between Hewlett-Packard and Compaq. Analysts said rallies will likely continue to fail until the business outlook improves.

The Dow Jones industrials closed up 47.74 at 9,997.49, falling back from an earlier gain of 232 points on news of the National Association of Purchasing Management report. It was the index's third straight session to close below 10,000.

Broader stock indicators fell, with early gains dissipating as the session advanced. The Standard & Poor's 500 index slipped 0.64 to 1,132.94, while the technology-laden Nasdaq composite index dropped 34.65 to 1,770.78.

Advancers led decliners 8 to 7 on the New York Stock Exchange, with 2,043 up, 1,045 down and 241 unchanged. Volume was 1.17 billion shares vs. 914.06 million Friday.

The NYSE composite index rose 1.71 to 589.55, the American Stock Exchange composite index fell 3.52 to 869.88 and the Russell 2000 index dropped 1.60 to 466.96.

The Treasury's 10-year note fell 1 232 to 100 1032; its yield rose 14 basis points to 4.96 percent. The 30-year bond fell 1 2032 to 98 1532; its yield rose 11 basis points to 5.48 percent.

"You've got a two-tiered market," said Barry Hyman, chief investment strategist at Ehren- krantz King Nussbaum. "Today was a very encouraging day for anything not technology because of the manufacturing numbers.

"But for technology, the news continues to be weak earnings, weak capital spending and a megamerger Wall Street doesn't like."

The lackluster close today marked a frustrating end to a session that had shown much more promise early on.

Fresh from the Labor Day holiday, Wall Street reacted enthusiastically in morning trading to NAPM's report that its index of business activity rose to 47.9 from 43.6 in July. The index was much stronger than the 44.0 analysts had anticipated.

The better-than-expected showing was welcomed by investors desperate for any indication that business is improving after a summer plagued by weak corporate performance and earnings warnings.

"The big thing happening here is a hint that the worst of the manufacturing correction may be behind us," said Michael Strauss, managing director at Commonfund.

But ultimately, that news failed to sustain a broad-based market rally as Wall Street retreated into a trading pattern that has frustrated investors for months -- and that helped send the Dow and Nasdaq last week to their lowest levels since early April.

Instead of using the advance as a chance to add to their holdings, investors unloaded stocks and cashed in profits for fear the market would not continue to rise.

Tech stocks were hit particularly hard, hampered by questions about whether Dow component Hewlett-Packard's decision to acquire Compaq would reinvigorate slumping business. Hewlett-Packard fell nearly 19 percent, down $4.34 to $18.87, while Compaq dropped $1.10 to $11.25.

Much of today's gains appeared to be driven by company or sector-specific news.

The Dow's modest advance came on Johnson & Johnson, which rose $3.44 to $56.15, a 6.5 percent gain on reports that its coated stents, used to battle heart disease, had performed well in clinical tests.