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Wall Street beats retreat
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March 9, 1999: 5:12 p.m. ET
Stocks ease as consolidation after last week's rally enters its second day
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NEW YORK (CNNfn) - Wall Street underwent a second day of consolidation Tuesday, as investors continued to cool off after last week's powerful advances in stocks.
The Dow Jones industrial average closed 33.85 points lower at 9,693.76. Market breadth on the New York Stock Exchange was negative, with declines leading advances 1,672 to 1,347 on trading volume of 800 million shares.
The Nasdaq Composite eased 4.68 to 2,392.94. The S&P 500 index slipped 2.89 to 1,279.84.
Earlier in the day, the market had gotten a boost from news that productivity, a key deterrent of rising inflation in the booming U.S. economy, climbed to a six-year high in the fourth quarter. The report pushed the bond market into positive territory and sparked renewed bullishness in stocks.
"We are still in a bull market," said Michael Holland, chairman of Holland & Co. (306K WAV) or (306K AIFF)
The bulls were also helped by unambiguous remarks from Federal Reserve Chairman Alan Greenspan, who told a conference in Arlington, Va., that there are no signs of inflation pressures on the horizon.
"The United States is currently in its ninth year of economic expansion, an exemplary accomplishment by any standard. Growth of output has remained vigorous, unemployment is lower than it has been in nearly 30 years, and yet, despite the tautness in labor markets, there have been no obvious signs of emerging inflation pressures," Greenspan said in his prepared remarks to a seminar on business access to capital and credit.
But after pushing the Dow up a whopping 4.6 percent last week and within reach of the historic 10,000 level, investors found themselves in doubt whether the road to new highs should be straight and uninterrupted.
Adding to the uncertainty in the market, nervousness over the outlook for earnings and growth in the high-tech sector weighed down on technology issues, the current leaders in the market both on the upside and down.
Concerns about valuations and the pace of earnings growth are making bonds more attractive than the stock market at this time, said A. C. Moore, investment strategist at Dunvegan Associates, (198K WAV) or (198K AIFF)
The bond market moved sharply higher after an early tumble, largely helped by the solid productivity report -- news that suggested inflation is kept in check, despite the healthy pace of economic growth. Greenspan's words also helped. The bellwether 30-year Treasury bond traded 26/32 of a point higher in price for a yield of 5.53 percent.
The dollar slipped both against the yen and the euro.
Merger speculation
In the stock market, the latest twist in the proposed buyout of Web portal Lycos (LCOS) by USA Networks (USAI) caused a stir in the stocks of both Lycos and CMGI (CMGI), its largest shareholder.
Lycos rallied 12-3/8, or nearly 15 percent, to 96-1/4 after company founder and CMGI Chief Executive David Wetherell resigned from the Lycos board to devote more time to opposing the Lycos/USA deal, which he called "inadequate" for Lycos shareholders. CMGI holds a 20 percent stake in Lycos. CMGI's shares, which tumbled early in the day, then rallied, slumped again, falling 5-1/4 to 194-7/16.
Elsewhere in the tech sector, shares of Microsoft (MSFT) rose 2-13/16 to 161-13/16 following a Seattle Times article suggesting the software powerhouse is exploring the possibility of settling the broad antitrust lawsuit brought against it by the Justice Department and 19 states. Late in the day, a source close to the government lawyers told Reuters there have been no talks about a settlement.
Separately, company Chairman Bill Gates was preparing to reveal a plan to hook up millions of Chinese TV viewers to the Internet in a visit to Shenzhen Wednesday.
The speculation of a possible Microsoft antitrust settlement surfaced a day after Intel (INTC), another of the industry's giants and also the object of an antitrust lawsuit by the Federal Trade Commission, settled its case a day before it was supposed to go to court. Shares of Intel, the world's largest computer-chip maker, fell 4-5/16 to 115-5/16 after rallying Monday. The stock got under heavy pressure late in the day, when rumors surfaced in the market that Intel would issue an earnings warning.
Intel's stock was also hurt partly by concerns over the near-term future of the semiconductor industry after the company's biggest rival, Advanced Micro Devices (AMD), late Monday said it would post a large first-quarter loss and fire 300 people, resulting in an unspecified first-quarter charge. Shares of AMD, whose K6 line of chips has suffered manufacturing problems, shed 1-7/16, or more than 7 percent, to 17-1/2.
The remaining big-name tech stocks gave a mixed performance, with IBM (IBM) closing 3-5/16 higher at 182-3/16 and Cisco Systems (CSCO) gaining 3/4 to 105-5/16. Dell Computer (DELL) finished 1-5/16 lower at 44-1/16.
S. G. Cowen & Co. Tuesday downgraded both Dell and Microsoft to "buy" from "strong buy."
Tobacco takes front seat
In other market-moving news, shares of tobacco and food giant RJR Nabisco (RN) rose 1/8 to 28-3/4 on news the company is selling its international tobacco business to Japan Tobacco for $8 billion and plans to split its domestic tobacco and food operations into two separate businesses, something investor Carl Icahn, who holds a 6.6 percent stake in the company, had been pushing for.
Rival Philip Morris (MO), a Dow component, rose 9/16 to 39-15/16.
Finally, a profit warning by Canadian aluminum giant Alcan Aluminium (AL), which blamed falling aluminum prices and weakness in Brazil and Europe, sent shares of the company down 1-1/8 to 23-11/16. Dow component Alcoa (AA) lost 1-11/16 to 37-7/8 in sympathy with its Canadian rival.
(Click here for a look at today's CNNfn market movers)
(Click here for a look at today's CNNfn technology stocks report) 
-- by staff writer Malina Poshtova Zang
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