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Weakness in Techs Weighs on Market

Cindy Perman|CNBC.com
Tuesday, 2 Sep 2008 | 3:34 PM ET

Stocks soared at the opening bell, fueled by oil's drop and the dollar's surge, but weakness in technology stocks sucked the air out of the rally.

After being up triple digits for most of the day, the Dow Jones Industrial Average was down 50 points, or half a percent, in afternoon trading. The S&P 500 and Nasdaq also retreated.

Fears that the global slowdown is going to cut into companies' tech spending is a key factor in the sector's retreat, Peter Kenny, managing director at Knight Equity Markets, told Reuters. It's a theme that's "going to be front and center for a number of months ahead because any global slowdown is going to deliver a direct hit to technology spending," he said.

Crude oil dropped $5.75 to settle at $109.71 a barrelafter Hurricane Gustav passed through the Gulf of Mexico, sparing most major oil facilities. The dollar rallied to a more than two-year high against the euro due to the drop in oil prices and worries about a slowdown outside the U.S.

Keep your party hats handy because, analysts say, oil is going to keep going and could soon drop below $100 a barrel, a level it hasn't seen since April.

"It would take a really major storm to change the direction in crude oil in the midst of its major correction since July, and Gustav is not it," Chris Jarvis, senior analyst for Caprock Risk Management, told Reuters. "Could we drop back below $100? Certainly."

Retailers advanced amid the expectation that lower oil prices will translate into more money for consumers. Not only did the discounters advance, but beaten-up department stores showed signs of life: JCPenney and Macy's were both up more than 4 percent.

Banks rallied on the thinking that, if consumers have more money, there will be fewer mortgage defaults. Bank of America jumped 5 percent, while Wachovia was up more than 3 percent.

Lehman Brothers advanced after state-owned Korea Development Bank (KDB) confirmed that it was in talks with for a possible investment in Lehman. Other reports said the price of the deal remained an issue.

Airline stocks soared, with Delta , Northwest and United parent UAL all up more than 15 percent.

For much of the session, commodity-related stocks were the only drags on the Dow: Chevron was the biggest decliner, followed by Alcoa and ExxonMobil . By midafternoon, Microsoft , Intel and other techs had joined their ranks, as well as Merck and Caterpillar .

The S&P energy-sector index was down 3.5 percent.

Google was among the only techs higher as investors cheered the debut of Chrome, Google's own Web browser aimed at competing with Internet Explorer. The browser is designed to more quickly handle video-rich or other complex Web programs.

Stocks of pharmaceutical giants Merck and Schering-Plough ticked higher despite two reports and an editorial in The New England Journal of Medicine about the potential cancer riskassociated with their popular cholesterol-fighting drug Vytorin.

On the economic front, the Institute of Supply Management reported its gauge of manufacturing activity slippedto 49.9 in August from 50 in July. New orders rose as prices paid fell, but a measure of employment also declined. Construction spending slipped 0.6 percent in July, compared with a 0.3 percent increase in June.

THIS WEEK:

MONDAY-THURSDAY: Republican National Convention

TUESDAY: ISM manufacturing; construction spending
WEDNESDAY: Weekly mortgage applications; ADP employment report; factory orders; crude inventories; Fed's beige book; Earnings from Staples, H&R Block and Hovnanian
THURSDAY: Monster employment report; jobless claims; productivity; ISM services index; Fed's Yellen speaks; Earnings from Toll Brothers
FRIDAY: August jobs report; earnings from Nat Semi

Send comments to cindy.perman@nbcuni.com.

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