Tech Shares Soar; Defensive Stocks Slide

Investors rediscovered technology stocks Wednesday but cut loose many of the so-called defensive issues that had sustained them during the recent market downturn.

Though analysts cautioned that the Nasdaq composite index, in particular, has a long climb ahead if it is to retake its March peak, the breadth of the advance and the day’s record trading volume set a healthy tone.

Tech stalwarts such as Microsoft, Oracle, Cisco Systems and Intel all soared as investors rushed to capitalize on the Federal Reserve’s surprise decision to cut its key short-term lending rate.

The tech-laden Nasdaq composite index surged 14.2%--its biggest one-day percentage gain ever.

But the index, which had plunged 39.3% in 2000 and 7.2% on Tuesday, still is 48% below its March 10 record of 5,048. To get to that level the index will have to double from here.

Stocks that prosper when interest rates fall--such as banks, brokerages and mortgage lenders--also rose, as did home builders and telecom companies.

In part, the day’s surge was driven by “short sellers”--traders who borrow stock and sell it, betting on lower prices--rushing to buy shares to close out their bets.

When the dust settled, the value of U.S. stocks had grown $708 billion, as measured by the Wilshire 5,000 total market index. The New York Stock Exchange and Nasdaq Stock Market both had their busiest day ever: The NYSE traded more than 2.2 billion shares and Nasdaq 3.1 billion.

“The market was looking for a catalyst, and the Fed’s move was that catalyst,” said Andy Damm, who helps manage $4 billion for BlackRock Advisors Inc. “In the near term, we seem to have found a bottom for the market.”

The Nasdaq advanced 324.83 points to 2,616.69. The Standard & Poor’s 500 index gained 64.29 points, or 5%, to 1,347.56.

The Dow Jones industrial average jumped 299.60 points, or 2.8%, to 10,945.75.

More than three stocks rose for every one that fell on both Nasdaq and the NYSE. All 25 of the most active U.S. stocks advanced; 98 of the Nasdaq 100 index’s members gained.

Cisco jumped $8, or 24%, to $41.31 and was the most-active stock with 165 million shares traded.

Oracle rose $5.63 to $32, Intel climbed $3.17 to $34.23, Microsoft gained $4.56 to $47.94 and Sun Microsystems advanced $7.56 to $33.

General Electric, the largest company with a value of almost $474 billion, climbed $4.06 to $47.81. It had tumbled $4.19 on Tuesday.

Computer data-storage maker EMC, which had fallen 18% Tuesday on concern that reduced spending by customers would cut profit, jumped $13.50, or 25%, to $67.81.

Brokerage shares rocketed as investors bet lower rates and a stock rally will reinvigorate the market for new equity and bond sales.

Lehman Bros. jumped $11.19 to $76.13, Goldman Sachs rallied $15.25 to $115.50 and Morgan Stanley Dean Witter jumped $11.56 to $83.69.

Bank shares climbed on the prospect of increased lending business. J.P. Morgan Chase, which began trading Tuesday after the merger of Chase Manhattan and J.P. Morgan, climbed $6.63 to $50.63; Citigroup gained $4.44 to $54.94; and First Union advanced $2.31 to $30.13.

Still, some investors said the Fed’s action indicated the economy had slowed more than they had previously believed.

It might “signal a really dire mood out of the Fed--that [policymakers] think things are worse than they are,” said George Cohen, who oversees $4 billion at Cohen, Klingenstein & Marks.

That led some analysts to caution that it may be premature to sell out of defensive stocks--companies such as drug makers, food producers and consumer product companies that typically perform better during slow economic times.

“I’d wait to call this the beginning of the end [for defensive stocks],” said Ira Loss of Washington-based think tank Washington Advisors.

The Amex pharmaceutical index, which rose about 27% last year, was off 4% on Wednesday as Merck slid $3.88 to $89.13 and Pfizer lost $2.56 to $43.56.

The Fed move also took some of the steam out of the consumer product and food sectors, which rallied in the second half of 2000 as investors sought a defensive position to insulate themselves from falling technology stocks.

The S&P; food index was off nearly 4% to 1,637.16 on the day, as chocolate maker Hershey Foods fell $3.75 to $61.38 and gum maker Wm. Wrigley Jr. was down $4.06 to $92.

Market Roundup, C7, C8