NEW YORK MARKET: Analysts duel over falling IBM stocks

MORGAN Stanley Dean Witter told investors IBM's stock could disappoint them. Merrill Lynch defended Big Blue, saying it's still a good buy. Morgan Stanley won Friday's battle of dueling analysts. IBM, slid 5 per cent to 168 9/16 after Morgan Stanley said the company's revenue from mainframe computers won't meet expectations because of price cuts.

The slump in one of the Dow Jones's biggest stocks erased any hope the benchmark would finally close above 10,000 after crossing the milestone three times during the last four trading days. The conflicting outlooks and IBM's decline illustrate investors' concern that they're about to get bombarded with warnings from computer-related companies about slowing profits or sales growth.

"People are having pre-reporting jitters for all technology [stocks] at this point," said Bob Finch, manager for Aeltus Investment Management. "The sense I have is that IBM is still one of the best value stocks in technology."

For the week, the Dow Jones Industrial Average gained 0.3 per cent to 9,903.55, while the S&P 500 added 0.4 per cent to 1,299.29 and the Nasdaq rose 1.7 per cent. It's become a truism of the bull market rush to 10,000 on the Dow industrials that the gains have been concentrated in a relatively few stocks.

The question is whether that "narrowness" really signals trouble for the market. Jeffrey Warantz, an equity strategist at Salomon Smith Barney, says it does. His "laggards" indicator shows that 77.6 per cent of all US stocks are performing worse than the S&P 500 by 15 per cent or more. "It has never been that high before," said Mr Warantz. The leaders, large computer-related companies such as Microsoft and Dell Computer, along with telecommunications, internet and consumer companies, could slump on any bad news as IBM did, sending the indexes lower. "You've got this tiny core of a very few stocks that have driven the market," said Mr Warantz. "Valuations have gotten very high. You're at a level where there is no room for a misstep; there will be no forgiveness." Companies in the S&P 500 are selling at a record price earnings ratio of 26.

Meanwhile, the celebrations of Dow 10,000 will have to wait. The 30-stock benchmark crossed 10,000 in the first 20 minutes of Tuesday's session and promptly pulled back. It poked its head over that level on Friday but couldn't hold the gains.

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