International Markets - New York: Profit warnings cap the surge

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THE US stock market's rally is expected to slow this week as warnings of disappointing earnings puncture confidence in the outlook for corporate America.

Compaq, Intel, Motorola, Read-Rite and FSI International were among companies warning last week that weak sales in the first two months would leave quarterly earnings short of expectations. Stocks rallied on Friday, but investors are concerned that more bad news lies ahead.

Bond investors got the biggest dose of bad news they've had in weeks. The Labor Department said on Friday the economy added jobs at a stronger- than-anticipated pace for a fourth consecutive month in February, though the robust growth isn't spurring inflation.

Investors were bracing for the worst. Yields on benchmark 30-year US Treasuries have climbed 20 basis points in three weeks as the economy exhibited few signs of slowing and comments by Federal Reserve Chairman Alan Greenspan quashed expectations for a cut in interest rates soon. But bond prices rebounded on Friday, sending the yield on 30-year bonds down 4 basis points to 6.02 per cent.

There was bad news in equities. Late on Friday, Compaq, the maker of personal computers, said first-quarter earnings would lag forecasts. The company's chief financial officer warned earlier in the week that price competition was intensifying.

Intel tumbled 13 per cent last week, making it the third worst-performing stock in the S&P 500 behind KLA-Tencor, down 15 per cent, and Compaq, off 14 per cent. Intel, the semiconductor maker, said that a drop in orders from PC makers would cause a profit shortfall in the first quarter. Motorola fell 3.7 per cent after it predicted that earnings would fall 25 per cent below estimates.

The Dow Jones Industrial Average rose 23.67 points, or 0.3 per cent, to 8569.39 last week, after setting an all-time high of 8584.83 on Tuesday. The S&P 500 rose 0.6 per cent, to a record 1055.64. The Nasdaq Composite Index, packed with computer, semiconductor and software companies, suffered the most, sliding 1 per cent for the week.

Earnings reports will take centre stage again this week, andthere is little room for disappointments. In February, the S&P 500 rallied 7 per cent, its best one-month gain since July, butthe spate of profit warnings from major corporations will cap the euphoria.

As investors question prospects for earnings, a second prop under the stock market's surge - continuing low interest rates - may be faltering. Economic reports have provided little evidence to suggest that the domestic economy is losing its head of steam.