NEW YORK (CNNmoney) - U.S. equity indexes finished little changed Monday, bouncing off earlier lows, as the bio-terrorism fears and chip-led tech selling that had plagued stocks most of the day eased up by the close.
A semiconductor-led tech slump had burdened trading for most of the day after J.P. Morgan and Lehman Brothers both downgraded a number of specialty chip and chipmaker names in a pair of pessimistic notes. Yet gains in select Internet, networking, and telecommunications issues offset some pressure by the close.
While the Dow had dipped as much as 100 points earlier in the day, the index managed to close in the black, with a number of companies expected to report Tuesday closing up ahead of their quarterly results announcements.
IBM (IBM: up $1.16 to $102.00, Research, Estimates), Johnson & Johnson (JNJ: up $0.37 to $55.72, Research, Estimates), and United Technologies (UTX: up $1.18 to $53.02, Research, Estimates) were among the gainers.
"I think investors are where they should be. They're nervous, but not panicking," Mark Lehman, analyst, Banc of America Securities, told CNNfn's Street Sweep.
Anthrax fears were exacerbated by a string of new reports, as the United States began its second week of air attacks against specific targets in Afghanistan.
A Continental airlines flight was quarantined in Cleveland late Monday afternoon because of an anthrax scare.
Senate Majority Leader Tom Daschle, D-S.D., said his office received a letter that initially tested positive for the anthrax bacteria. The news, first revealed by President Bush around noon ET, sent stocks back toward session lows.
The news follows an earlier announcement that New York-based NBC news, a unit of General Electric (GE: down $0.14 to $38.86, Research, Estimates), and a Nevada-based Microsoft (MSFT: up $1.68 to $58.06, Research, Estimates) subsidiary were among the latest targets of suspected anthrax contamination.
"There's a lot of nervousness on the political front and that's keeping the buyers out of the market," said Matt Ruane, director of listed trading for Gerard Klauer Mattison. "We've got 50 significant companies reporting results this week - but at this point, bad news is almost good news, because it's so built in to people's expectations."
After the close of trade, semiconductor equipment maker Novellus Systems (NVLS: down $2.26 to $31.64, Research, Estimates) said its third-quarter profit was 24 cents per share, in line with estimates, and five cents less than earnings one-year earlier.
The Nasdaq composite fell 7.09 to 1,696.31. The Dow Jones industrial average was up 3.46 to 9,347.62. The Standard & Poor's 500 slipped 1.67 to 1,089.98.
Market breadth was mixed on light volume. On the Nasdaq, advancers edged decliners as 1.58 billion shares traded. On the New York Stock Exchange, losers and winners were evenly split as 990 million shares changed hands.
Global markets gave U.S. indexes little support. Asian stock markets closed lower Monday, while financials, chemicals and banks pushed European bourses mostly lower by the close of trade.
Treasury prices rose, particularly longer-dated issues, with the 10-year note yield falling to 4.61 percent. The dollar lost value versus the euro and the yen.
Chips pressure techs
Analyst downgrades in the semiconductor industry initially overwhelmed the major indexes, but the pressure eased up by late afternoon on gains in networking issues, telecommunication and Internet names.
Sonus Networks (SONS: up $0.34 to $3.99, Research, Estimates) helped lead the networking sector up on news that Comverse Technology (CMVT: up $0.93 to $20.39, Research, Estimates) has successfully incorporated Sonus' switches in one of its platforms.
Handheld computer maker Handspring (HAND: up $0.59 to $2.78, Research, Estimates) boosted rival Palm (PALM: up $0.10 to $2.54, Research, Estimates) as well as other telecommunication-related stocks, after unveiling a handheld computer with a built-in cell phone for the expanding European and Asian markets.
eBay (EBAY: up $2.66 to $61.57, Research, Estimates) and Amazon.com (AMZN: up $0.81 to $8.88, Research, Estimates) helped lift the Internet sector.
Transmeta (TMTA: up $0.32 to $2.25, Research, Estimates) was a notable gainer in the chip sector, rising as the company was set to unveil a new microprocessor.
But PMC-Sierra (PMCS: down $2.25 to $16.55, Research, Estimates) and Applied Micro Circuits (AMCC: down $1.47 to $11.63, Research, Estimates) fell after J.P. Morgan cut its rating on the specialty chips, while KLA-Tencor (KLAC: down $2.54 to $36.63, Research, Estimates) and Applied Materials (AMAT: down $1.52 to $33.64, Research, Estimates) were among the equipment makers singled out by Lehman Brothers.
No. 1 chipmaker Intel (INTC: down $0.64 to $24.38, Research, Estimates) was also weaker, sliding ahead of its quarterly results, expected after the close Tuesday.
Bank of America tops 3Q estimates
In earnings news, Bank of America (BAC: up $2.54 to $55.55, Research, Estimates) reported a third-quarter operating profit of $1.28 a share, down from $1.31 a year earlier but above Wall Street forecasts of $1.25.
Separately, the company's brokerage arm said it is lowering its 12-month target for the S&P 500 to 1,225 from 1,275. The company also is reducing its equity weighting in its model portfolio to 65 percent from 70 percent, placing the proceeds into bonds, which rise to 30 percent from 25 percent. Cash stays at 5 percent.
Biotech United Therapeutics (UTHR: down $6.32 to $10.04, Research, Estimates) fell after results of the latest trial of its vascular disease drug conflicted with an earlier trial.
Cepheid (CPHD: up $0.28 to $8.06, Research, Estimates) and Pollution Research and Control (PRCC: up $0.50 to $1.14, Research, Estimates) continued to earn the confidence of investors worried about bio-terrorism fears.
Research In Motion (RIMM: up $0.78 to $17.26, Research, Estimates) is negotiating with high-level defense personnel to develop the company's trademark Blackberry technology for the Department of Defense, according to a published report. 
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