Blue chips rally on lower prices, tech slips

AP Business WriterNEW YORK (AP) -- Blue chip stocks rose Wednesday -- giving the Dow Jones industrials their first two-day advance in nearly a month -- as investors again searched for bargains after weeks of declines. But tech stocks were left behind, falling in response to two disappointing economic reports.

Despite the Dow's advance -- its second straight triple-digit gain -- the session had a cautious tone, reflecting investors' persistent doubts about the strength of the economy. And analysts again doubted that the upturn would last because lower prices haven't been enough to sustain the market; investors are still demanding solid evidence that business is improving.

"The market is trying to come back as some investors look at it as oversold. ... But this is nothing more than a bear market rally," said Christopher Johnson, managing quantitative analyst at Schaeffer's Investment Research in Cincinnati.

The Dow closed up 113.41, or 1.1 percent, at 10,059.63, recovering from an earlier drop of 115.49, according to preliminary calculations. The blue chips, which rallied 126.35 Tuesday, had not risen for two straight sessions since April 4-5.

The broader market finished mixed. The Nasdaq composite index stumbled 10.70, or 0.6 percent, to 1,677.53, having risen 31.30 in the previous session. The Standard & Poor's 500 index advanced 9.54, or 0.9 percent, to 1,086.46.

Lower prices were the only lure for investors Wednesday.

The market was disappointed by a report that said manufacturing activity grew at a slower-than expected pace in April. The Institute for Supply Management said its index of business activity slipped to 53.9, below the reading of 55.0 that analysts were expecting. A level above 50 indicates growth, while a figure below that points to contraction.

Another blow came from the Commerce Department, which reported that construction spending dipped 0.9 percent in March due to a decline in big government projects including highways and schools.

The reports conflicted with earlier, more upbeat economic data, such as Friday's report that the nation's gross domestic product grew at an annual rate of 5.8 percent in the first quarter. Analysts said investors are waiting for positive reports to decisively outweigh negative ones before they commit to the stock market.

"What they want to see is consistently strong economic numbers and strong earning reports, or at least not negative ones. They are not seeing all this all at once," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "They are seeing spotty economic reports, and good ones once in a while. They are seeing some good earnings but also negative and neutral earnings."

Dow industrial Procter & Gamble rose $1.54 to $91.80 after the maker of Tide and Crest reported fiscal third-quarter earnings a penny higher than analysts had anticipated. Kenneth Cole, whose profits also beat expectations by a cent, climbed $1 to $28.

Alcoa, a Dow stock, advanced 12 cents to $34 after Merrill Lynch raised its rating on the aluminum products maker.

Technology was the weak spot, which has been the case during much of the recent sell-off and which is not surprising given that high-techs are expected to be the last companies to emerge from recession.

Sun Microsystems fell $1.21 to $6.97 after president and chief operating officer Ed Zander announced his retirement after more than 15 years at the network hardware and software company.

Advancing issues outpaced decliners 3 to 2 on the New York Stock Exchange where volume was moderate.

The Russell 2000 index, the barometer of smaller company stocks, inched up 0.16 to 510.83.

Overseas, Japan's Nikkei stock average rose, while Britain's FT-SE 100 fell 0.8 percent. Germany's DAX index and France's CAC-40 were closed for the Labor Day holiday.

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