NEW YORK (CNN/Money) - Big losses in Microsoft and IBM sank the major U.S. stock indexes Friday after the two technology leaders became the latest companies to disappoint shareholders.
The Nasdaq composite index gave back all its gains for the year as Wall Street notched a second straight losing week. And the Dow Jones industrial average, which hasn't had a winning year since 1999, saw its 2002 losses widen, falling for the eighth time in 10 days.
IBM, the largest technology company in terms of revenue, said sales in the latest quarter fell short. No. 1 software maker Microsoft readied Wall Street for lower-than-expected profit.
"Maybe we have bottomed," Maureen McCarthy, head of equity trading at Robertson Stephens, told CNNfn's Halftime Report. "But in terms of going higher, when it comes to corporate guidance, we are not hearing that."
The first busy week for companies reporting December-quarter results saw a stream of bad news from Intel, J.P. Morgan Chase, Kmart, Enron and others.
Data on consumer confidence, spending and jobless claims pointed to economic stability. But the week's hundreds of corporate results were unable to sustain the market's year-end 2001 rally, which pushed the Nasdaq as much as 44 percent above its September lows.
"Fundamentally, this economy is in recovery," Joe Cangemi, trader at Francis P. Maglio, told CNNfn's Market Call. "But we do need to bring it to the bottom line."
The Nasdaq skidded 55.48 points, or 2.8 percent, to 1,930.34, falling 0.3 percent on the year. The Dow industrials tumbled 78.19, or 0.8 percent, to 9,771.85, widening its 2002 loss to 2.5 percent. Down 1.8 percent on the year, the Standard & Poor's 500 index dropped 11.30, or 1 percent, to 1,127.58.
More stocks fell than rose. On the New York Stock Exchange, declining issues topped advancing ones 9-to-6 as 1.3 billion shares changed hands. Nasdaq losers beat winners 7-to-4 as 1.6 billion shares traded.
In other markets, Treasury securities rose. The dollar dipped versus the euro and finished little changed against the yen.
Latest tech selloff
IBM (IBM: down $5.65 to $114.25, Research, Estimates) said its sales fell to $22.8 billion in the fourth quarter, weaker than expected, as demand for computer outsourcing equipment manufacturing slowed. While IBM's profit topped forecasts, its shares, up more than 30 percent since late September, were the hardest hit among Dow issues.
It was a similar situation for Microsoft (MSFT: down $3.76 to $66.10, Research, Estimates), whose shares fell more than 5 percent. Microsoft said that tough economic conditions will take a bite out of sales in the current quarter and profit in the fiscal year ending in June.
Losses spread to Intel (INTC: down $1.05 to $33.48, Research, Estimates), which sells chips to Microsoft and IBM.
Nasdaq's most actively traded stock, Sun Microsystems (SUNW: down $0.25 to $12.12, Research, Estimates), said it lost 3 cents a share on an operating basis in its second quarter. That's narrower than expectations, but it follows a profit in the year-earlier quarter.
The loss at Nortel Networks (NT: down $0.24 to $7.50, Research, Estimates) was in line with forecasts as sales tumbled for the telecom equipment maker.
Few stocks suffered more than Read-Rite (RDRT: down $2.10 to $3.99, Research, Estimates). The maker of disc-drive parts suffered a downgrade by J.P. Morgan Chase after the company cut its sales outlook.
Not all technology companies were downbeat. Dell Computer (DELL: down $0.85 to $28.10, Research, Estimates), the No. 1 direct seller of PCs, raised its fiscal fourth-quarter sales and profit targets.
Mining some gains
The Dow's biggest gainer, 3M (MMM: up $2.28 to $106.80, Research, Estimates), said fourth-quarter profit fell to 98 cents a share, topping forecasts.
Gains in Home Depot (HD: up $0.50 to $48.50, Research, Estimates), Boeing (BA: up $0.82 to $39.15, Research, Estimates) and Coca-Cola (KO: up $0.39 to $45.44, Research, Estimates) kept the Dow's losses in check.
Sports Authority (TSA: up $1.22 to $6.72, Research, Estimates) also bucked the losing trend after the sporting goods retailer upped its fourth-quarter profit forecasts.
In economic data released Friday, the University of Michigan said its index of consumer sentiment rose to 94.2 in January, well above forecasts, and the highest level in a year. A big gain in the index's expectations component fueled the advance, indicating that Americans bank on better times ahead.
The pace of job losses has slowed while the housing market has not cratered the way it did during the country's last recession. Consumer spending also has held up even as the unemployment rate stands above a six-year high.
Earlier, the government said the U.S. trade deficit narrowed to $27.89 billion in November as demand for imports declined.
To spur spending, the Federal Reserve cut short-term interest rates 11 times last year. But long-term rates, which are set by the bond market, have not fallen as much. Traders have been selling bonds, pushing yields higher and dousing some of the Fed's rate-cut fire, on a bet that the economy will bounce back later this year.
"The main impact of the Fed cutting interest rates at this point would be on psychology," Bill Chaney, economist at John Hancock, told CNNfn's Before Hours.
Central bank policy makers meet Jan. 29 and 30 to consider whether to act further on rates.
Next week brings only four trading days. U.S. markets are closed Monday for Martin Luther King Jr. Day. They'll reopen to another busy week for December-quarter results. Johnson & Johnson (JNJ: down $0.13 to $59.70, Research, Estimates), Merck (MRK: down $0.60 to $58.00, Research, Estimates), Caterpillar (CAT: down $0.33 to $48.98, Research, Estimates) and Coca-Cola (KO: up $0.39 to $45.44, Research, Estimates) are among the companies reporting.
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Investors hope for a better week. The Nasdaq fell 4.5 percent over the past five sessions while the Dow shed 2.15 percent. 
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