New York Market: Internet stocks trimmed back

The internet bubble may not have burst, though it sure did lose some air. Amazon.com, the online bookseller, is down 34 per cent from its record $184 on 11 January, giving back a fraction of its almost 10- fold rise last year. The Street.com index of 20 internet stocks has slumped 17 per cent since peaking on the same day.

Internet stocks "are having a little dose of reality thrown on them'', said Gary Dvorchak, money manager for Provident Investment Counsel.

The rest of the stock market cooled off last week as well. The Dow Jones Industrial Average slumped 2.4 per cent to 9,120.67 and the S&P 500 lost 1.5 per cent. Stocks started slumping after Federal Reserve chairman Alan Greenspan indicated on Tuesday that the central bank is not likely to lower interest rates again soon. There is concern that Brazil's devaluation of its currency could be followed by a similar move in China and that Brazil will drag the rest of Latin America into recession. Latin America accounts for 20 per cent of US trade.

The declines came even after better-than-expected earnings reports from Microsoft, IBM and Lucent Technologies. Investors seized on the troublesome parts of some companies' earnings - IBM's decline in network server sales, Lucent's lower-than-expected revenues. "When you look at stocks like IBM and Lucent, they were priced for perfection," said Jon Olesky, at Morgan Stanley Dean Witter. Investors want to see "not a hiccup, not a wrinkle".

He added: "In each case, both of these companies reported fantastic numbers but you do have periods where the market gets ahead of itself and the price levels don't allow room for any mis-step at all."

Still, stocks are not likely to plunge too far in the coming days. Investors poured an estimated $10.1bn into US mutual funds in the four days leading up to Wednesday.

Treasury bonds may have a tough time, though, big investors say. With the economy growing faster than many expected, the Fed is not likely to cut interest rates and the Treasury's quarterly debt sales are just weeks away. That could cause a temporary glut.

Jack Saunders, bond manager at USAA Investment Management, said he expectes the 30-year Treasury bond yield to stay between 4.9 per cent and 5.4 per cent for the next month, if not longer.