Stocks Flat as Dell, Duke Weigh

abcnews.go.com — By Haitham Haddadin

NEW YORK (Reuters) - U.S. stocks mostly hugged the flatline at midday on Monday after a rating downgrade on Dell Computer Corp. <DELL.O> and an earnings warning from Duke Energy Corp. <DUK.N> helped reverse an opening advance before key corporate earnings reports this week.

The blue-chip Dow Jones industrial average and the tech-laden Nasdaq rose slightly, while the broader Standard & Poor's 500 inched down a fraction of a point.

Last week, the three major market gauges gained between 2 percent and 4 percent amid a handful of strong earnings outlooks. But Wall Street is looking for confirmation of that guidance in earnings reports this week from several marquee companies plus a host of economic reports such as monthly retail sales, the Producer Price Index and consumer sentiment data.

"This is simply profit taking ahead of all the economic numbers as well the earnings reports due out this week," said Harry Michas, index futures trader at manmarketmonitor.com. "This market ran up pretty well over the past two weeks and I think it's time to take some profits off the table."

An upbeat brokerage call on Intel Corp. <INTC.O>, the chipmaking giant, had helped fuel the early gains in high-tech issues. However, Dell Computer fell after it was downgraded, denting other stocks in the sector. Also weighing on the market was Duke Energy, which sank nearly 12 percent after warning that earnings for 2002 would fall short of forecasts.

The Nasdaq Composite <.IXIC> edged up 0.79 of a point, or 0.05 percent, to 1,448.51, after rising more than 1 percent. The Dow Jones average <.DJI> was up 4 points, or 0.04 percent, at 8,788.66. The S&P 500 Index <.SPX> shed 1 point, or 0.12 percent, to 926.50.

U.S. Treasuries slipped as stocks rallied earlier. But after stocks fizzled, bonds clawed back some losses.

The most-active issue on the New York Stock Exchange was Canada's Nortel Networks Corp. <NT.TO> <NT.N>, up 13 cents to $2.48, or 5.5 percent. Nortel's stock touched a seven-month high on Friday as investors bet on a better 2003 for telecom equipment suppliers, spurred by some optimistic analyst calls.

The reversal in the indexes coincided with fresh economic data showing a sharp drop in the Kansas City Federal Reserve's regional manufacturing index, which covers manufacturing activity in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

"Timing wise, the drop in the Kansas City Fed Manufacturing index has caused a nosedive in stock index futures," said one stock index futures trader on the Chicago Mercantile Exchange. "The move downward was a surprise because the first half hour (of pit trade) seemed to be pointing the markets toward higher levels. This would be an excuse to take profits off the table."

The decline in the Kansas City Fed index suggests care should be taken in gauging whether national factory activity has picked up. The Kansas City manufacturing index registered -20 for December; of the 96 firms surveyed, more saw production drop from November's level than those who saw it rise.

SHORTING THE SPIDERS

"There's heavy selling on the Nasdaq futures and the shorts are also piling up at 930 on the S&P. They are shorting the spiders (exchange-traded S&P index fund) at 930. That's resistance," said Anthony Iuliano, head equity trader at Glenmede Trust Co.

Nasdaq 100 futures were down 12.50 points at 1,079, and S&P futures fell 4.30 points to 922.20. Earlier, both were higher.

"The traders are taking some profits. There's still a lot of problems out there with the geopolitical situation and earnings are not that fascinating so there's some concern over earnings," Iuliano said.

Intel was up 10 cents at $17.52 after earlier in the session rising as high as $17.98. Salomon Smith Barney raised its 2003 earnings estimates for Intel, which reports fourth-quarter earnings after the close on Tuesday.

Dell fell after J.P. Morgan Chase cut its rating for the computer maker to "Neutral" from "Overweight" because of "an increasingly aggressive industry pricing environment."

Dell declined $1.02, or 4 percent, to $26.13. Rival Hewlett-Packard <HPQ.N>, a Dow stock, lost 23 cents to $20.62.

Duke Energy fell $2.63, or 12.5 percent, to $18.37, and was the second-most active issue on the New York Stock Exchange. Duke also said the sluggish U.S. economy would prevent any near-term recovery of the merchant energy business.

Besides Intel, several other tech heavyweights, including International Business Machines Corp. <IBM.N>, report this week. Other big companies set to hand in their scorecards include General Motors Corp. <GM.N> and General Electric Co. <GE.N>, two of the 30 Dow industrials.

"The focus this week will be on corporate earnings announcements," Ken Tower, chief strategist at CyberTrader, Inc. told clients in a note. "The economy has been mixed over the past three months, so expect the same from earnings. For the markets, that means volatility, particularly since trouble in Venezuela and Iraq remain unresolved."

AOL'S CASE STEPS DOWN

After the resignation of Steve Case as chairman of AOL Time Warner Inc. <AOL.N>, AOL's stock rose 28 cents, or 1.9 percent, to $15.16. Effective in May, Case's resignation completes the exodus of the key architects of the $106.2 billion merger, which irked investors by not delivering on its promise to supercharge growth by marrying old and new media.

Early in the session, stocks got a lift as oil prices fell from recent two-year highs after OPEC's decision on Sunday to lift output. The Organization of Petroleum Exporting Countries, at an emergency meeting, increased production limits by 1.5 million barrels per day, or 7 percent, to compensate for six weeks of supply disrupted by a strike in Venezuela.