Net Stocks Drag Market Down

After surging powerfully early in the day, the stock market finished mostly lower Wednesday amid heavy selling in leading Internet stocks.

Strong profit reports from Microsoft and several other technology companies paced the buying early on. But profit-taking took hold as the major indexes slid throughout the afternoon.

The Dow Jones industrial average, up almost 125 points in the first three hours of trading, finished down 19.31 points, or 0.2%, at 9,335.91.

The tech-dominated Nasdaq composite index, which has led the market’s spectacular rebound since early October, ended up just 7.32 points, or 0.3%, at a record 2,415.49, after being up as much as 2.7%.

In a continuation of downturns that began early last week, Amazon.com and Yahoo, two of the highest-flying Internet stocks of the last few months, were hit hard.

Bookseller Amazon.com plunged $26.81, or 19%, to $113. That was its biggest drop since a 21% dive on Aug. 31. Net directory firm Yahoo tumbled $35.81, or 11%, to $287.19, its worst one-day decline since falling 11.5% on Nov. 30.

Meanwhile, America Online fell $2 to $148.50 after trading as high as $155.

Amazon.com now is down 43% from its intraday record high of $199.13 reached on Jan. 8. Yahoo has slumped 35% from its recent intraday peak of $445. However, both stocks remain well above their levels of early October.

Some analysts have predicted that once the Internet stocks begin to fall, panicked selling would occur as investors who have ridden the stocks to extraordinary heights madly rush for the door.

But the recent selling of stocks such as Yahoo and Amazon.com has occurred on much lower trading volume than what the stocks saw as they moved sharply higher in recent months.

Still, sentiment about Internet stocks on many online investor “bulletin boards” has turned increasingly negative in recent days.

“If we get this Chinese water torture, with slow grinding falls, it could at some point trigger a panic and start feeding on itself,” said Tom Taulli, market analyst at Silicon Investor, a Web site specializing in technology stocks. “But I don’t think we’re at that point yet.”

The latest selling appears to stem partly from the expiration of so-called lock-up periods, during which company insiders at firms that have recently gone public are temporarily barred from selling shares, Taulli said.

Also, insiders at Internet companies that went public about a year ago are selling some shares now that their holdings qualify for the lower capital-gains tax rate, he said. The holding period for the lower rate is 12 months.

Among other Internet stocks that fell Wednesday, Broadcast.com slid $17.38 to $120, GeoCities lost $10 to $65, MarketWatch.com--which just went public last week--plunged $23.88 to $72.50 and Network Solutions slumped $34.38 to $175.50.

Also, Onsale lost $4.13, or 8%, to $46.13. On Tuesday the stock sank 14% after the Internet auction company said its fourth-quarter sales were weaker than expected because of falling sales of computer products. That report hurt other online commerce firms on Wednesday, including UBid, off $8.19 to $73.81, and EBay, down $16.13 to $213.75.

In the broad market, winners and losers were nearly evenly matched on the New York Stock Exchange and Nasdaq. Nasdaq volume hit 1.28 billion shares, the third-busiest session ever.

Traders said Federal Reserve Chairman Alan Greenspan’s comments about the economy and the market didn’t faze most investors. The market rallied throughout his testimony and slipped only after he had finished.

Greenspan told the House Ways and Means Committee that the U.S. economy’s performance remains exceptional. But echoing sentiments he has expressed in the past, Greenspan indicated that he thought stock prices may have risen too high relative to corporate earnings expectations.

In the Treasury market yields rose at midday as Greenspan spoke, but finished below their highs for the day. The 30-year T-bond yield ended at 5.17%, up from 5.14% on Tuesday but below its midday peak of 5.21%.

Among Wednesday’s highlights:

* Microsoft jumped $7 to $162.63 in very heavy trading of 31.4 million shares after reporting strong earnings. The company said after the close Tuesday that its fiscal second-quarter profit rose 75% to 73 cents a diluted share.

The results, implying strong PC demand, propelled personal computer and related companies Wednesday. Dell Computer jumped $3.19 to $85.31, Hewlett-Packard climbed $2.25 to $71.75 and IBM rose $2.25 to $194.50.

* Among other tech companies, Texas Instruments jumped $6.63 to $99.63. The big maker of chips for cellular phones and other electronic devices said its fourth-quarter operating profit rose a better-than-expected 8.2%. And Xilinx, a specialty semiconductor maker, surged $7.13 to $82.13 after reporting better-than-expected fiscal third-quarter profit.

* On the downside, airline stocks slumped on disappointing earnings news. US Airways plunged $6.31 to $51.13.

* Shares of tobacco companies fell a day after President Clinton said the Justice Department would sue cigarette companies to recover the costs of treating people with smoking-related diseases. Philip Morris slid $2.38 to $48.44.

Market Roundup, C7

* GREENSPAN’S VIEWS: Fed chief concerned about the market’s lofty levels. C4

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Mania.com Over?

Leading Internet-related stocks took another sharphit Wednesday, with Amazon.com falling to its lowest level since Dec. 31. Weekly closes and latest on Nasdaq:

Wednesday: $113, down $26.81

Source: Bloomberg News