NEW YORK (CNNfn) - Wall Street started Monday on shaky ground after a profit warning from the world's premier personal computer maker, Compaq, rattled technology shares while a shaky performance by Asian markets overnight added to the negative tone.
Shortly before 10 a.m. the Dow Jones industrial average was 9.72 points lower at 8,559.67. On the New York Stock Exchange, declining stocks led advancing issues 1,324 to 963 as 79 million shares changed hands.
Broader markets also took a hit, especially the technology-heavy Nasdaq Composite, which lost 12.82 to 1,740.67. The S&P 500 index was down 3.08 to 1,052.61.
Bonds posted modest gains, but investors appeared unwilling to push the market in either direction ahead of an important retail sales report Thursday. The price of the benchmark 30-year Treasury bond rose 5/32 of a point, lowering the yield to 6.01 percent.
The dollar was mixed, falling against the German mark after the release of a robust German economic report, but rising against the Japanese yen amid overall weakness in Asian currencies after the International Monetary Fund delayed a crucial aid package to Indonesia.
Compaq warning tests investors
Bull's nerves were rattled Monday, following Friday's late profit warning by Compaq (CPQ), the world's largest personal computer maker. Shares of Compaq plunged 2-5/8, or 9.5 percent, to 25 after the company told investors that smaller demand for PCs and sliding prices would bite a chunk off first-quarter earnings.
As is usual after such an announcement, Wall Street analysts rushed to lower their earnings estimates for Compaq although some resisted cutting their ratings of the stock. Bear Stearns kept its "buy" rating of the stock and Robertson Stephens maintained its "long-term attractive" recommendation of Compaq. Donaldson Lufkin & Jenrette even upgraded shares of Compaq, adding them to its "recommended buy list."
Compaq's warning became the last straw for the technology sector after chip giant Intel (INTC) and Motorola Inc. (MOT) issued similar gloomy forecasts earlier in the week. Shares of Intel, whose warning sparked a sell-off on Wall Street Thursday, fell 1-3/8 to 76-3/4. But the stock of Motorola, whose warning was ignored by investors, rose 3/8 to 53-3/8.
Meanwhile, shares of Dell Computer (DELL), one of Compaq's key rivals in the PC business, tumbled 4-3/16 to 65-1/16. Dells shares split 2-for-1 after the market closed Friday. Bear Stearns kept its "buy" rating on the stock despite Compaq's warning, but DLJ lowered its recommendation to "market perform."
A blizzard of deals
Monday also brought a deluge of merger-related news, adding to the frantic tone of the market.
Among the day's newsmakers, trading in shares of Lockheed Martin (LMT) was delayed after news that the Justice Department is "fundamentally opposed" to the company's proposed $11.6 billion marriage to Northrop Grumman (NOC). Shares of Northrop Grumman plummeted 17-5/8, or almost 13 percent, to 120.
In another deal, Qwest (QWST) and LCI International (LCI) agreed to join operations in a $4.4 billion stock swap that would create the fourth-largest long-distance phone company in the United States. Shares of Qwest rose 1/2 to 37 and the stock of LCI jumped 5, or 14.5 percent, to 39-3/8.
Elsewhere, Aliminum Company of America (Alcoa) (AA) said it would by rival Alumax (AMX) for $3.8 billion, including cash, stock and the assumption of debt. Shares of Alcoa rose 2-1/8 to 73-3/4, and the stock of Alumax soared 10-13/16, or more than 29 percent, to 47-1/2.
--by staff writer Malina Poshtova Zang
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