Stocks Pare Gains on Iraq War Fears

Technology stocks rose Friday, led by semiconductors after a brokerage warmed to sector giant Intel Corp., and blue chips eked out slim gains on data showing improvement in the U.S. economy. But the broad market logged its third down month in a row amid renewed concerns over a U.S. war with Iraq.

The blue-chip Dow Jones industrial average gained 6.09 points, or 0.08 percent, to 7,891.08, after earlier rising to an intraday high of 7,965.80. The tech-laced Nasdaq Composite rose 13.60 points, or 1.03 percent, to 1,337.54 and the broad Standard & Poor's 500 edged up 3.87 points, or 0.46 percent, to 841.15.

For February, the Dow fell about 2.02 percent, while the S&P 500 was off 1.70 percent. In contrast, the Nasdaq finished February up 1.26 percent, after snapping a two-month losing streak in January.

"People are still afraid that something will go off in the Middle East," said Todd Clark, head of listed trading at Wells Fargo Securities in San Francisco. Clark said the Iraqi decision to destroy its missiles was viewed positively, but then President Bush said it wouldn't be enough to meet a United Nations resolution that the country disarm.

Stocks rallied earlier on surprisingly healthy readings on business activity in the U.S. Midwest and economic growth for the fourth quarter of 2002, when the U.S. economy grew at twice the annual rate than previously estimated as businesses rebuilt inventories and consumers opened the wallets.

"The economic news was pretty good. Everything was slightly higher. But we have been having a seesaw market," said Andrew Baker, senior trader at Wedbush Morgan. "People don't see the need to chase these rallies when nothing's been resolved."

Market watchers said the specter of an imminent U.S. attack on Iraq is haunting Wall Street. Iraq said in principle it would obey United Nations orders to destroy its ballistic missiles, but the United States pressed on with its military buildup in the Gulf region.

"When you have so much geopolitical uncertainty, you don't want to go home with any large position one way or another," said Craig Cummins, a trader at Cantor Fitzgerald. "I know that our objective is to go home as flat as possible until there is some closure in the Middle East."

Intel (INTC) rose 56 cents, or 3.4 percent, to $17.26, helping the Dow. Investment house Lehman Brothers raised its per-share profit outlook for Intel, the world's largest maker of computer chips, in 2003 and in 2004, citing overseas demand and market share gains. It was the most active stock on Nasdaq.

The Philadelphia semiconductor index rose 2.78 percent, reflecting gains by Xilinx Inc. up $1.12 at $22.90, and KLA Tencor , up 62 cents at $35.75.

International Business Machines Corp. (IBM) rose 67 cents to $77.95, also lifting the Dow. IBM said it signed a six-year technology deal worth about $1 billion with France's biggest insurer, Axa -- a move Axa expects will save it money.

Gap Inc. (GPS) sank $1.78, or 12 percent, to $13.04. The No. 1 U.S. specialty apparel retailer swung to a fourth-quarter profit, helped by popular holiday goods, but noted that the spring season was off to an unexpectedly slow start.

Specialty drug company First Horizon Pharmaceutical Corp. (FHRX) plunged $3.74, or almost 65 percent, to $2.06 and ranked among the most actively traded shares on Nasdaq. The company reported slightly higher fourth-quarter income, but warned that first-quarter results will fall short of previous expectations and said it will start a reorganization plan.

Software maker Novell Inc. (NOVL) lost 48 cents or close to 16 percent to $2.60. Novell moved to a fiscal first-quarter loss as revenues fell, and said it would not issue near-term forecasts due to the weak economy and the threat of war.

Univision Communications Inc. (UVN) climbed 95 cents, or 4 percent, to $24.77 after the nation's biggest Spanish-language broadcaster said it expects earnings to exceed consensus estimates. On Friday, shareholders of both Univision and Hispanic Broadcasting Corp. approved Univision's proposed acquisition of Hispanic Broadcasting, a deal that will make Univision the biggest Spanish-language radio operator in the United States.

Stocks had opened higher after the government revised its latest reading on U.S. economic growth to show an annual expansion rate of 1.4 percent in the fourth quarter of 2002, twice the gain of 0.7 percent it reported a month ago.

The market extended gains after another report showed business activity in the Midwest grew in February for a fourth straight month. The National Association of Purchasing Management-Chicago said its business gauge fell to 54.9 from 56.0 in January , but still beat estimates of a read of 53.

A separate report early in the day showed that consumer sentiment hit its lowest level in nine years in February, but still beat Wall Street's expectations.

Advancing stocks outpaced decliners by a ratio of 9 to 7 on the New York Stock Exchange but gainers were narrowly outnumbered by losers on Nasdaq. More than 744 million shares changed hands on the Big Board, and more than 770 million on Nasdaq in moderate trading.

The Russell 2000 index, the barometer of smaller company stocks, slipped 0.91, or 0.3 percent, to 360.52.

Overseas, Japan's Nikkei stock average finished Friday essentially flat, rising just 0.04 percent. In Europe, France's CAC-40 rose 1.4 percent, Britain's FTSE 100 advanced 2.4 percent and Germany's DAX index gained 1.4 percent.

Reuters and the Associated Press contributed to this report.