AT&T and MCI WorldCom, the two largest U.S. long-distance phone companies, posted gains in second-quarter earnings, in line with expectations, driven by cost cuts and surging sales of Internet services. AT&T's profit rose 8 percent, to $1.59 billion, as the company boosted sales 7 percent, to $15.82 billion. MCI WorldCom's net income almost tripled, to $857 million, on a 16 percent gain in sales to $8.1 billion.

The Clinton administration said it would conduct a legal review of the privacy implications of a planned computer network surveillance system that has drawn fire from civil liberties groups. The Federal Intrusion Detection Network would monitor government computer systems to detect unauthorized break-in attempts by hackers. A draft proposal had dismissed privacy concerns and said the system was intended eventually to include monitoring of private-sector computers.

Investors cut their purchases of stock mutual funds in July as equity markets fell in the United States and abroad, making it one of the slowest months this year, analysts said. Stock funds are on pace to attract $7.6 billion for July, down from $19.2 billion in June.

The United States said it will begin denying imports of textiles and clothes from companies found to be circumventing U.S. quotas by illegally transshipping goods. The U.S. Commerce Department said 77 firms in Macau will be the first companies affected by the new regulations after Sept 1.

The Federal Trade Commission wants Congress to make Internet pharmacies disclose information about the businesses selling the drugs and the doctors prescribing them online. As consumers increasingly enjoy the savings and convenience of buying medicine over the Internet, authorities have been frustrated in their attempts to enforce laws because many Web sites do contain adequate identifying information, according to the FTC.

A dozen law firms that participated in Mississippi's successful battle with the tobacco industry were formally awarded $1.4 billion in fees and expenses. Eleven of the 12 law firms are in Mississippi. The Tobacco Fee Arbitration Panel's decision gives the firms an amount equal to about one-third of the state's $4.2 billion share of the multistate tobacco settlement. Separately, the panel awarded five law firms that participated in the Massachusetts lawsuit $775 million in fees and expenses, equal to 9.3 percent of that state's $8.3 billion share of the $206 billion, 46-state tobacco settlement.

Global information technology spending will rise 50 percent, to $3.3 trillion, in the next three years, with most investment on creating online businesses, GartnerGroup said in a report. In 1999, 40 percent of the $2.2 trillion in IT investment is expected to be on preparing computer systems for the year 2000 date change.

Intel sued EMI Group, claiming a U.S. unit of the world's No. 3 music company attempted to extract money from Intel by filing a patent-infringement lawsuit in 1995. Intel is seeking at least $4.5 million in damages. It accused the EMI unit of offering to drop its patent infringement claim in exchange for $60 million.

Sanford Weill and John Reed, co-chairmen and chief executives of Citigroup, said they have split management duties, a sign that some analysts said meant Weill is strengthening his position. Former Travelers Group chief Weill will act as the focal point for operating businesses and finance. Reed, who ran Citicorp before the October merger, is taking charge of Internet projects, advanced technology and product development, human resources and legal issues. Reed and Weill will work together on risk management, credit and strategic planning.

Hewlett-Packard said the medical-equipment and electronic-measurement company it plans to spin off next year will be called Agilent Technologies. The new company, to be based in Palo Alto, Calif., will have 43,000 employees and annual sales of $8 billion, Hewlett-Packard said.

Eastman Kodak said it will close its X-ray film plant in Wuxi, China, and fire 520 workers because of strict environmental laws that inflated plant-upgrade costs.

RECALLS

The Consumer Product Safety Commission recalled 1,600 riding lawn mowers made by WCI Products and sold at Quality Farm & Fleet stores in the Midwest and East because of faulty fuel lines that may cause fires. Owners can call 1-888-677-2995 to determine if a mower is part of the recall.

EARNINGS

Apache and Anadarko Petroleum said second-quarter earnings more than tripled, to $29.6 million and $8 million, respectively, while rival oil explorer Kerr-McGee, which also makes chemicals, said profit from continuing operations more than quintupled, to $53.5 million.

BMC Software said fiscal first-quarter profit including acquisition costs and charges fell 76 percent, to $16.4 million. Excluding acquisition costs and amortization, profit rose 34 percent, to $105.3 million.

Electronic Data Services said second-quarter earnings rose 8 percent, to $240.6 million, including a gain of $26.5 million.

Kellogg reported that second-quarter profit rose 8 percent, to $154.2 million, as it scaled back promotions on cereals. It was the first increase in earnings in five quarters.

Minnesota Mining & Manufacturing said its second-quarter profit from operations rose 9 percent, to $421 million, the first increase in seven quarters, as the maker of consumer and industrial products cut costs and boosted sales.

Procter & Gamble reported fiscal fourth-quarter earnings of $385 million, a 40 percent decline from its year-earlier level. The maker of household products attributed the decline primarily to a $385 million after-tax charge for the costs of a reorganization announced in June.

Cable TV's USA Networks said its second-quarter loss narrowed while cash flow rose, bolstered by wrestling matches and ticket sales to Bruce Springsteen shows. The pro forma loss from operations was $10 million, compared with a loss of $12.4 million in the year-earlier quarter.

LOCAL BUSINESS

Nextel Communications, a nationwide wireless phone services provider based in Reston, said Craig McCaw and his family exercised options to purchase 15 million of its shares yesterday for $277.5 million. The family paid $18.50 for each share, Nextel said. The shares are valued at $839.1 million at yesterday's closing price of $55.93 3/4. Proceeds from the McCaw family purchase, combined with an investment from Microsoft, will help Nextel build its national wireless network and compete with AT&T and Sprint.

Network Solutions, the dominant registrar of Internet addresses, is being investigated by European Union regulators, who are examining whether the company is trying to bar rivals from the addresses business. Herndon-based Network Solutions soon will lose a U.S. government-bequeathed monopoly for registering addresses that end in .com, .org and .net. The EU is investigating whether Network Solutions is locking in its business partners to prevent them from working with new rivals once the monopoly ends, a commission spokesman said.

Fairchild said it has sold its 32 percent interest in Turkish beverage-can company Nacanco Paketleme to American National Can Group for $48 million in cash. Dulles-based Fairchild said it would use the proceeds to reduce its debt.

America Online named Paul Cappuccio general counsel and senior vice president. Cappuccio had been a senior partner in the Washington office of Kirkland & Ellis, where he led the telecommunications-law practice. Cappuccio takes over from Sheila Clark, who had been acting general counsel since George Vradenburg was promoted in December to senior vice president for global and strategic policy.

Shares of Teleglobe fell almost 19 percent after the telecommunications company's warning that second-quarter and year-end profits would fall short of earlier projections. Teleglobe shares on the New York Stock Exchange closed at $21.68 3/4, down $5.07 3/4. Through its Reston subsidiary, Teleglobe Communications, Teleglobe acts primarily as a carrier's carrier, offering connectivity services to customers such as telecom companies and Internet service providers.