NEW YORK (CNNfn) - February went out with a whipsaw for Wall Street, as weary investors looked hopefully toward Friday's bond market rally only to be hit with warnings of profound weakness ahead for benchmark technology stocks.
The day's selling began with a barrage of bearish remarks on the computer sector's growth prospects and soon spread to the broader market.
The turnaround was only fitting, according to Bryan Piskorowski, Prudential Securities vice president and market analyst, who noted that it was appropriate for the technology sector to lead the broader market into retreat just as it had led the other stocks up from their autumn lows.
By the close, the technology-rich Nasdaq Composite had fallen 38.79 points, or 1.67 percent, to 2,288.03. The losses finish the Nasdaq's circular journey for the week, bringing net gains to only 4.41 points, but the index remains 4.35 percent ahead in the year so far.
Blue chips suffered in sympathy with the Nasdaq, driving the Dow Jones industrial average down 59.76 points to 9,306.58. The Dow ended the week down 33.37 points, but remains up 1.36 percent on the year.
Market breadth remained negative throughout the day, with losers narrowly beating winners 1,496 to 1,445 on the New York Stock Exchange. Trading volume was a healthy 767 million shares.
The S&P 500 fell 6.69 points to 1,238.33, closing the circle begun Monday to end down less than a point on the week. For the year to date, the broad index trails both the Dow and the Nasdaq, up only 0.74 percent.
The contagious technology selling lured investors away from their nervous fascination with the bond market, which had sparked mid-week selling on Wall Street with the threat of higher interest rates ahead. The benchmark 30-year bond rallied Friday, climbing 1-6/32 points in price on news that inflation remains under wraps, while the yield slipped to 5.57 percent.
The dollar extended its retreat from the yen but a made minimal advance on the euro as neither bonds nor the strong economic data seemed able to encourage much greenback buying.
Difficulties for technology
The day saw recent pressure on the beleaguered technology sector intensify after Wall Street analysts poured fresh salt into the market's tender concerns that computer makers may be facing the end of blockbuster revenue growth.
Brian Finnerty, head of Nasdaq trading at Unterberg Harris, said the computer sector should show some strength into March, but otherwise forecast a weaker long-term picture for the broader high-tech industry.
Meanwhile, new downgrades for computing bellwether Compaq (CPQ) kept up the selling pressure unleashed Thursday when Merrill Lynch analyst Steve Milunovich predicted a downturn in computer sales.
PaineWebber and Donaldson, Lufkin & Jenrette lowered their "buy" ratings on Compaq to "neutral" and "market perform," respectively. In particular, PaineWebber analyst Don Young cited weak current-quarter sales, indicating that Milunovich's downturn could be near at hand.
Separately, analysts from two other investment firms, including Milunovich, cut their near-term earnings forecasts on Compaq, helping push the stock down 5-13/32, more than 13 percent, to 35-19/32.
Competing computer makers were not spared. Dell (DELL) fell 1-5/8 to 80-1/8 and Gateway (GTW) tumbled 7-7/16 to 72-11/16. Dow component Hewlett Packard (HWP) abandoned its recent show of contrarian strength, falling 4-3/4 to 66-7/16, while fellow blue chip IBM (IBM) lost 3-7/8 to 169-3/4. Sun Microsystems (SUNW) fell 5-3/8 to 97-5/16.
Semiconductor makers also suffered deepening losses, plunging after Donaldson, Lufkin & Jenrette warned that slowing PC sales could spread to chips, crippling that sector's fragile upward momentum.
Semiconductor giant Intel (INTC) fell 7-13/16 to 119-15/16 and rival AMD (AMD) ended unchanged at 18-1/8, lifted out of the red by news that it had outpaced Intel for the first time in market share. Chip-equipment maker Applied Materials (AMAT) tumbled 8-1/8 to 55-5/8, while news of a $777 million takeover bid saved VLSI (VLSI), pushing shares up 4-3/4 to 15-1/2.
The selling spilled over into other technology bellwethers, undoing the weak rebound of late Thursday. Microsoft (MSFT) fell 3-3/8 to 149-15/16 and networking giant Cisco (CSCO) slid 11/16 to 97-13/16.
Banks, merger rumors add lift
However, the rebounding bond market eased short-term worries over big banks' massive Treasury holdings, allowing the banking sector to become one of the firmest rallying points in an otherwise gloomy session.
Investors salivated over the banking-friendly prospect of higher interest rates ahead, a recent chilling factor for the rest of the market. Dow component Citigroup (C) climbed 2-1/8 to 58-3/4 and Bank One (ONE) rose 1-9/16 to 53-3/4, while Zions Bank (ZION) leapt 2-5/16 to 64.
Internet provider America Online (AOL) benefited from persistent market rumors that the company could be targeted for a marriage of "near-equals" by AT&T (T). AOL shares climbed 1-5/16 to 88-1/2, but AT&T joined in the broader decline, sliding 2-5/16 to 82-5/16.
Merger speculation also gave truck maker Navistar (NAV) a lift, pushing shares up 3-9/16 to 43 after a firm "no comment" from Volvo failed to quash rumors of a transatlantic deal ahead.
(Click here for a look at today's CNNfn market movers.)
(Click here for a look at today's CNNfn tech stock report.) 
-- by staff writer Robert Scott Martin
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