NEW YORK (CNNfn) - U.S. blue chips kept their cool most of Thursday, sitting tight as "new economy" tech names struggled to shut out the deafening chorus of brokerage pessimism, and during the last hour of trade, the old guard stepped in, showing the new kids how to press on in times of turmoil.
"We're set up for a nice little rally, however, how long it can last is unclear," Ken Tower, director of technical research, UST Securities, told CNNfn's Street Sweep.
The Dow Jones industrial average closed up 114.03 to 8,681.42. The Standard & Poor's 500 index closed up 11.57 to 1,018.61. The lone dissenter was the Nasdaq composite index, which bounced off its lows, but still closed down 3.33 to 1,460.71.
Influential names that had pressured the Dow industrials all day, such as Microsoft, IBM and 3M, eased off their lows, with 3M closing in the black.
Consumer cyclicals, oil and pharmaceuticals – sectors seen traditionally as defensive buys during times of extreme volatility – were tepid throughout the day but sprinted for the finish line in the last hour and a half.
But the jittery tech sector continued to plague the Nasdaq.
"Things are still very volatile and there's been an aversion to technology all day," said Donald Selkin, chief investment strategist, Joseph Gunnar.
Techs felt the heat of investor and analyst nervousness throughout the session. Merrill Lynch and J.P. Morgan downgraded the networking stocks, while Goldman Sachs cut chipmakers. Meanwhile, Morgan Stanley zoomed in on Cisco's earnings estimates, and Lehman Bros. did the same for IBM.
The firms cited overall weakness in the specific sectors both preceding and heightened by the Sept. 11 terrorist attack against the United States.
However, RF Micro Devices (RFMD: down $0.56 to $15.73, Research, Estimates) offered some respite for the chip sector late in the day after it said that its outlook for its second-quarter results remain unchanged and that the third quarter should show some growth.
But economic reports released earlier in the day highlighted the argument made by some economists that a recession is within sight, if not already here.
In another disheartening sign of the economic aftermath of the Sept. 11 attack, the government said new jobless claims rose to their highest levels since 1992.
Demand for durable goods – items intended to last more than three years – fell more sharply than economists had predicted, although new home sales continued to rise.
Market breadth was mixed. Decliners edged out advancers on the Nasdaq as 2 billion shares changed hands. On the New York Stock Exchange, winners beat out losers as 1.45 billion shares were traded. Volume was somewhat light due to the Yom Kippur holiday.
Asian and European markets finished higher. Treasury prices rose on the jobless data. The dollar rallied sharply against both the yen and the euro.
The Dow takes the lead
Computer maker IBM (IBM: down $1.30 to $90.00, Research, Estimates) had been down as much as three points earlier in the day after influential Lehman Bros. analyst Dan Niles cut third-quarter earnings estimates on the personal computer maker to 88 cents per share from 95 cents. Estimates for 2001 were cut by a dime to $4.40 per share and by a nickel for 2002 to $4.95 a share.
However, IBM bounced off its lows in late trade, as did previous Dow components DuPont (DD: up $0.45 to $36.15, Research, Estimates) and Microsoft (MSFT: down $0.31 to $49.96, Research, Estimates), while 3M (MMM: up $2.93 to $96.31, Research, Estimates) turned around completely.
AT&T (T: up $0.91 to $18.70, Research, Estimates) gave the Dow a boost on news that it was in merger talks with BellSouth (BLS: down $0.60 to $41.95, Research, Estimates), according to press reports.
Drugs and consumer cyclicals gave strenght, as Pfizer (PFE: up $1.20 to $39.75, Research, Estimates), Merck (MRK: up $2.86 to $66.21, Research, Estimates), Procter & Gamble (PG: up $1.27 to $72.40, Research, Estimates), and Johnson & Johnson (JNJ: up $0.35 to $54.48, Research, Estimates) all rose.
Oil stocks like Exxon Mobil (XOM: up $2.41 to $38.42, Research, Estimates) also rose.
The government continued to support the airline industry. Speaking in Chicago, President Bush outlined his plans for heightening airport safety, including federalizing airport security, putting more armed marshals aboard flights and kicking in $500 million to strengthen cockpit security.
Sonus, Cisco pressure networkers
Sonus (SONS: down $3.52 to $2.88, Research, Estimates) started the networking ball rolling late Wednesday when it warned it would post a loss in the current quarter rather than the profit previously forecast. Morgan Stanley accentuated this Thursday by cutting the company's earnings estimates.
Morgan Stanley cut Cisco Systems' (CSCO: down $0.99 to $11.24, Research, Estimates) 2002 earnings estimates to 22 cents per share from 28 cents and cut the No. 1 chipmaker's price target to $16.
J.P. Morgan issued some negative comments on networkers, downgrading Sonus and Riverstone Networks (RSTN: down $1.47 to $5.63, Research, Estimates) and cutting estimates on Foundry Networks (FDRY: down $0.38 to $5.80, Research, Estimates) and Enterasys Networks (ETS: down $0.13 to $6.25, Research, Estimates).
Application server maker TALX (TALX: down $6.13 to $18.95, Research, Estimates) fell in tandem.
Extreme Networks (EXTR: down $0.80 to $6.53, Research, Estimates), also among J.P. Morgan's downgrades, had its estimates cut by ABN Amro.
Merrill Lynch joined in, cutting estimates on many of the same networking stocks.
Merrill also cut its price target and 2002 earnings estimate for storage provider Brocade Communications (BRCD: down $1.53 to $14.16, Research, Estimates), pressuring sector mates Emulex (EMLX: down $0.47 to $9.05, Research, Estimates) and Network Appliance (NTAP: down $1.23 to $6.68, Research, Estimates).
Goldman Sachs cut chips, highlighting such names as Xilinx (XLNX: up $1.02 to $22.66, Research, Estimates) and Altera (ALTR: down $0.61 to $15.77, Research, Estimates).
Not all the news in technology was dour. Software maker Citrix Systems (CTXS: up $3.91 to $22.29, Research, Estimates) rose on a Merrill Lynch upgrade.
Telecoms and turned upward or backed substantially off early-day lows, including Ericsson (ERICY: up $0.09 to $3.52, Research, Estimates), Palm (PALM: down $0.09 to $1.54, Research, Estimates) and Nortel (NT: down $0.09 to $5.25, Research, Estimates), while biotechs proved resilient. Amgen (AMGN: up $2.16 to $59.45, Research, Estimates) and Abgenix (ABGX: up $3.76 to $24.26, Research, Estimates) were amongst the names in the sector to close substantially higher.
A few select Internet names also did better, including Yahoo! (YHOO: up $1.00 to $9.11, Research, Estimates), eBay (EBAY: up $1.07 to $45.11, Research, Estimates), and e-learning company SmartForce (SMTF: up $1.60 to $15.00, Research, Estimates), as well as media company Viacom (VIA: up $0.80 to $33.40, Research, Estimates).
Granite Construction (GVA: up $2.48 to $24.74, Research, Estimates) rose as much as 17 percent on an upgrade from UBS Warburg following news that it had been awarded a contract to rebuild a subway terminal in the New York City borough of Brooklyn.
In the day's biggest deal, Reliant Resources (RRI: down $0.93 to $15.75, Research, Estimates) agreed Wednesday to buy electric power generating company Orion Power Holdings (ORN: up $5.86 to $25.06, Research, Estimates) for $2.9 billion cash. 
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