NEW YORK (CNNfn) - The Nasdaq composite index fell for the fourth time in five sessions Tuesday as investors dumped technology stocks on continued uncertainty over the direction of interest rates and the state of corporate profits.
But money moved into drug and consumer products shares -- which often hold up if the economy slows -- sending the Dow Jones industrial average higher for the second straight session.
"The market is defensive," Peter Green, market analyst at Gerard Klauer Mattison, told CNNfn's Talking Stocks. "It indicates to us that we'll see a slowing of profit growth going forward."
As if on cue, a key index of manufacturing activity showed surprising weakness Tuesday. But the gauge offered no certainty on whether the Federal Reserve, which raised interest rates six times sine June, 1999, is done tightening credit. At the same time, fears of an earnings slowdown, which plagued the market last week, have not gone away.
 Ron Hill, partner at Brown Brothers Harriman told CNN's Street Sweep that the growth rate of corporate earnings and revenue will soon slow for the first time since 1998.
"That has a lot of implications for tech stocks," said Hill, who forecasts range-bound trading ahead. "Maybe we've seen the highs and lows of the year."
The Nasdaq index fell 81.49 points, or 2.2 percent, to 3,685.50 Tuesday, pushing it down 8.5 percent from last Tuesday's close.
But the Dow Jones industrial average rose 84.97 to 10,606.95 on strength from Merck, Coca-Cola and Procter & Gamble. The S&P 500 gained 7.27 to 1,438.10.
 Market breadth was mixed. Advancing issues on the New York Stock Exchange led decliners 1,678 to 1,183 on trading volume of 921 million shares. But Nasdaq losers topped winners 2,316 to 1,676 as more than 1.3 billion shares changed hands.
In other markets, Treasury securities rose. The dollar gained against the euro but fell versus the yen.
Market waits for more data
In a development typically cheered by the stock markets, the day's main economic indicator suggested the economy is slowing under the weight of the Federal Reserve's interest rate hikes. The release of the National Association of Purchasing Management survey of industrial activity showed unexpected weakness last month. And the prices paid component, an inflation gauge, rose at a rate that was below expectations.
"The (Fed policy makers) will welcome this data as providing further confirmation that the slowing of economic growth in Q2 (the second quarter) has been extended into Q3," said Steven Wood, economist at Bank of America.
 Slower growth could keep the Fed from tightening credit, making it easier for companies to grow profits. But many think the best clues into the central bank's next action come with Friday's jobs report for July. Investors aren't likely to place big bets ahead of those numbers.
Investors, said Al Goldman, chief market analyst at A.G. Edwards, "are concerned about the economy. Is the Fed finished? Have they gone too far and are corporate profits going to suffer?"
Speaking to CNNfn's market coverage, Goldman said he remains bullish, betting the Fed is done hiking rates. He believes earnings growth will slow only moderately. And he likes technology stocks like Cisco Systems and Applied Materials for their ability to boost profits faster than other market sectors.
Stocks in the technology sector, which fueled a bull market that lasted through March, fell Tuesday. Cisco Systems (CSCO: Research, Estimates) shed 2-1/4 to 63-3/16, Applied Materials (AMAT: Research, Estimates) dipped 1-5/16 to 74-9/16 and Oracle (ORCL: Research, Estimates) lost 2-1/16 to 73-1/8.
But Merck (MRK: Research, Estimates) jumped 2-15/32 to 74-1/8 and Coca-Cola (KO: Research, Estimates) gained 1-13/16 to 63-1/8 as investors showed preference for the most-proven of companies with stable earnings. In one school of investing thought, a slowing economy won't stop consumers from buying staples like drugs or beverages.
Linda Jay, floor trader at RPM Specialists, meanwhile, told CNNfn's Market Call that the shifting into different sectors is a good thing for the market. (329K WAV) (329K AIFF).
Results slow to a trickle
Procter & Gamble (PG: Research, Estimates), a Dow component, rose 2-1/8 to 59-1/8. The maker of Tide, Crest and Pringles posted quarterly earnings Tuesday of 55 cents a share excluding one-time items, unchanged from a year earlier and matching Wall Street forecasts. Procter & Gamble, one of the Dow's worst performing companies this year, twice in 2000 warned it would miss profit estimates.
Some companies, meanwhile, might be happy with any profits at all. barnesandnoble.com (BNBN: Research, Estimates) fell 15/16 to 4-3/16 after reporting a larger-than-expected second-quarter loss of $39 million, or 27 cents a share. Wall Street had anticipated a loss of 18 cents a share.
 The poor results come as Wall Street has shown little tolerance for Internet retailers that bleed money. Amazon.com stock fell to a 52-week low last week after the leading Web retailer said quarterly losses widened. But Amazon.com (AMZN: Research, Estimates) was among the few Nasdaq winners Tuesday, rising 1/8 to 30-1/4.
As companies finish reporting corporate results for the April-June quarter this week, overall earnings have been strong. Of the 410 S&P 500 firms that have posted earnings for the period, 264, or 64 percent, came in above Wall Street expectations. But that apparently didn't help stocks. Of the major indexes, only the Dow rose in July. 
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