Stocks plunge; Microsoft derails technology sector

NEW YORK -- The Nasdaq composite index continued its steep slide Wednesday, plummeting 286 points and closing below 4,000 after a Goldman Sachs analyst lowered his expectations for Microsoft's revenues during the just-ended quarter.

Microsoft's woes sent a chill through the entire technology sector and demolished an early rally by the Dow Jones industrial average.

The Nasdaq finished a volatile session 286.27 points lower at 3,769.63, its second worst point drop in history and its first close below 4,000 since Jan. 31. The 7.1 percent decline was the sixth worst in percentage terms.

The Nasdaq is now down 7.4 percent for the year to date, having given back all of the 24 percent gain it had achieved as of March 10, when it closed at an all-time high of 5,048.62. The closing level was the Nasdaq's lowest since Jan. 6, when it closed at 3,727.13.

The Dow fell 161.95 to 11,125.13. The blue-chip index spent most of the day in positive territory as financial stocks soared, but was pulled lower by the drop in technology shares.

Broader stock indicators also fell. The Standard & Poor's 500 dropped 33.42 to 1,467.17 and the Russell 2000 index of smaller companies fell 16.69 to 493.44.

Microsoft, which has already seen its market value plunge as it fights antitrust charges, fell 4 1/2 to 79 3/8. Wednesday morning, Goldman Sachs analyst Rick Sherlund cut his revenue estimate for the company's fiscal third quarter to $5.75 billion from $5.95 billion.

Sherlund said in a research note that personal computer sales during the quarter appear to have missed Goldman Sachs's earlier estimates.

''This is a further negative for sentiment in a poor tech market,'' Sherlund said. Computer makers slumped on the news; Dell fell 4 1/16 to 51 3/8, IBM fell 6 3/8 to 113 and Hewlett-Packard plunged 10 13/16 to 135.

Microsoft's drop provided the latest catalyst for the continuing drop in the Nasdaq.

''If investors think there's a prick in the bubble, that gives them a reason to get out of some stocks that are making them nervous anyway,'' said Robert M. Balentine, chief executive officer of investment advisory firm Balentine & Co. in Atlanta.

The Nasdaq's decline accelerated last week, when the index fell more than 400 points over the course of two wildly volatile sessions. Last week, with many unproven, more speculative technology stocks spiraling lower, some investment brokerages demanded that investors put up cash to cover stocks that were bought on margin -- with money borrowed from the brokerage.

Those ''margin calls'' may have come into play Wednesday, exacerbating the selloff. Traders said Dow stocks faltered as investors scrambled to raise cash in case the Nasdaq's steep drop spurs a new round of margin calls in the coming days.

Analysts remain divided on whether the Nasdaq is headed back toward last week's low point of about 3,650 or poised for a round of bargain-hunting. Balentine, for one, believes that the technology selloff has not yet run its course.

''This will hurt the day trader, and the person who lost all their diversification in favor of an all-technology portfolio,'' he said. ''But these stocks had so far to fall that you've still got to believe that this is healthy.''

At the very least, analysts say, the volatility has brought some welcome skepticism to the technology market, ending the frenzy for any stock tied to the Internet.

''Investors will be more discriminating in their buying of technology and Internet stocks,'' said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis.

Earnings reports continued to provide some enticement to buy individual stocks. Enron rose 2 to 71 1/8 after reporting first-quarter earnings of 40 cents a share. Analysts had anticipated earnings of 37 cents a share. The strong report confirmed expectations that energy companies will show the sharpest profit growth for the recently ended quarter.

J.P. Morgan rose 1 15/16 to 136 11/16. The investment bank earned $3.37 per share in the first quarter, above analysts' estimates of $2.81 a share.

American Express rose 5 9/16 to 150 3/4 amid expectations that it, too, will report strong earnings.

Clorox rose 2 3/4 to 40 1/16 after the company secured an arrangement with online grocer Webvan to sell its products over the Internet.

Advancing issues outnumbered decliners by a 10-to-9 margin on the New York Stock Exchange. On the Nasdaq, decliners led advancers by a 10-to-3 margin.

NYSE composite volume totaled 1.42 billion shares, compared with 1.19 billion in the previous session.

Overseas, Japan's Nikkei stock average rose 1.5 percent. Germany's DAX index rose 0.01 percent, Britain's FT-SE 100 fell 0.5 percent, and France's CAC-40 fell 0.4 percent.

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