A mid-day rally rescued blue chip stocks from another down day, but technology stocks could not keep up.
The Nasdaq Stock Market composite index fell for the fifth time in the seven trading days since the second quarter began, this time undercut by Merrill Lynch's downgrade of computer chip stocks.
Personal computer sales are slowing, Merrill's analysts said, and the chip industry cycles appears to have peaked out, so its time to get out of the stocks. "Semiconductor equities offer no upside," Merrill said.
Intel Corp., whose stock was downgraded from "buy" to "hold" by Merrill Lynch, was the biggest loser, on a percentage basis, among stocks in the Dow Jones industrial average.
Intel's drop led the Dow down by 50 points in morning trading, but the blue chip index bounced back around 2 p.m., closing up 25 points at 10,238.22. The Standard & Poor's 500 stock index also recovered from it's morning losses, closing up a point and a half at 1,114.35.
But Nasdaq couldn't do it, managing to make up only about half its morning losses, closing down more than 9 points at 1,936.92.
Today's losses brought the Nasdaq's retreat since the end of June to 111 points, a 5.4 percent decline.
Tech traders got some good news, however, when New York-base Leucadia National Corp. served notice that it wants to acquire 50 percent or more of MCI, the telephone company that came out of bankruptcy only three months ago.
Leucadia, an insurance and investment firm, is asking anti-trust approval of the acquisition. The deal would also need the endorsement of MCI's board of directors, which so far made no comment on the offer.
MCI stock jumped 17 percent, gaining $2.45 a share to $17.05 after the Leucadia move was announced.
Wall Street speculation is that the proposal will start a bidding war for MCI. Several phone companies have been named as potential buyers.
Leucadia has already taken one flyer in telecom, buying WilTel, another bankruptcy survivor.