Techs Gain Slightly, Dow Slides After Fed Cuts Rates

NEW YORK – Technology stocks gained a little territory while blue chips dipped after the Federal Reserve, in a widely expected move, cut interest rates for the fifth time this year in its continued effort to reinvigorate a flagging U.S. economy.

Because the Fed rate cut had been so widely priced into the market, the net effect was muted.

The Dow Jones industrial average briefly gained but fell back to earth, ending the day down 4.36 points at 10,872.97. The technology-dominated Nasdaq composite index gained 3.80 points to 2,085.72. The broad Standard & Poor's 500 Index edged up 0.51 of a point to 1,249.43.

The Fed cut its federal funds rate, a benchmark for short-term interest rates, to 4.0 percent from 4.5 percent, part of the central bank's efforts to reinvigorate the U.S. economy by lowering the borrowing costs for businesses and consumers. In its accompanying statement, the central bank said it still sees excessive weakness as the main threat to the economy, citing concerns about falling investment spending and weak corporate profits.

``They did the big cut that was expected, and they continue to see the balance of risks weighing to the downside,'' said Pierre Ellis, senior economist at Decision Economics. ``They go on to note inflation is expected to remain contained. So the door is open for more easing, quite wide open.''

But the rate reduction failed to spark a strong rally on Wall Street, as many previous announcements have done. Although the major stock indexes did advance on the Fed's move, those gains faded as the session wore on.

Since the last rate cut on April 18, stocks have moved higher on the expectation that lower rates will reduce borrowing costs for businesses and consumers, thereby boosting spending and corporate profits.

In the technology sector, Microsoft fell 45 cents to $68.27, while Texas Instruments rose 24 cents to $37.03 after reiterating a second-quarter outlook that includes double-digit revenue losses.

Retailing, manufacturing and other non-technology issues were also mixed. Wal-Mart slipped $2.35 to $52 after meeting previously reduced expectations for its first quarter but warning that

But Citigroup rose 45 cents to $50.55, while Home Depot gained 95 cents to $50.10.

The Fed's move was closely watched because, in the absence of strong profits or other encouraging news, Wall Street has been increasingly looking to interest rate cuts as a catalyst on which to rally. As a result, the markets traded in a narrow range for much of the week leading up to the Fed's announcement. Investors were also unnerved by speculation that the Fed would cut rates by less than a half percentage point.

Now the market must look for other good news to advance on, but analysts say that might not come along for a while.

Pre-announcements for second-quarter results, which are expected to be weak, will start rolling in next month. And no one knows whether the Fed will cut rates again, although the statement issued Tuesday suggests that the action is not out of the question.

``I thought their statement was surprisingly aggressive. They said that they may lower rates again if conditions continue to deteriorate,'' said Bill Barker, investment strategy consultant at Dain Rauscher. ``But we've got six weeks until their next meeting with the unlikely prospect of an intra-meeting cut before then.''

Advancing issues led decliners 3 to 2 on the New York Stock Exchange. Volume came to 1.04 billion shares, well ahead of the 848.91 million reported at the same point Monday, which was the lowest volume day of 2001 for both the NYSE and Nasdaq Stock Market.

The Russell 2000 index was up 2.99 at 489.63.

Overseas, Japan's Nikkei stock average rose 1.3 percent. Germany's DAX index advanced nearly 0.1 percent, Britain's FT-SE 100 was up 2.7 percent, and France's CAC-40 gained 1.0 percent.

— The Associated Press and Reuters contributed to this report.