NEW YORK MARKET: Computer stocks in favour despite fall

ONE, less tragic, side effect of the Taiwan earthquake was the closure of plants where computers chips are made, lowering profit expectations for companies such as Intel and Dell. Remarks by Steven Ballmer, president of Microsoft, exacerbated fears that computer-related stocks are overpriced.

Money managers say, however, that investors willing to wait out short- term fluctuations will be rewarded. "We're going to be stepping up from here," said George Gilbert, fund manager for Northern Trust Bank. He's planning to increase the percentage of his portfolio in internet stocks to 15 per cent from 12. Last week's sell-off has presented a "buying opportunity".

Earnings for computer-related stocks are expected to rise 23 per cent in the fourth quarter compared with 14 per cent a year ago. Jupiter Communications, a research firm says consumers will spend $6bn (pounds 3.64bn) online in November and December, up from $3.1bn a year ago.

Last week, the S&P 500 index fell 4.4 per cent, led by Intel and Microsoft. The Dow had its worst week in a year, dropping 4.9 per cent and the Nasdaq also dropped 4.5 per cent.

Was this week's bad news the end of the world for technology stocks? "No way!" said James Gribbell, fund manager with David L Babson. "There's so much growth in the technology sector, derived by the growth in internet usage." He's not adding to his portfolio right now but he believes last week's declines are short-lived. "People will panic for a few days but they have short memories."

"Technology is all the rage," said Eric Efron, at USAA Investment Management. "E-commerce is going to be very strong over Christmas." He said it's possible that the volume of online sales will double this year and that internet- related stocks won't be affected permanently by last week's turmoil.

More cheer can be found in third-quarter earnings, money managers say. "Valuations are high now," said Alan Loewenstein, co-manager of the John Hancock Global Technology Fund. "But earnings will be good. As earnings come through, so will growth and then the valuations will be justified."

Still companies that can't take advantage of a holiday spending spree could suffer. Intel may see profits fall below current expectations because of rising prices for semiconductors and shortages created by the Taiwan earthquake.