Nasdaq rises on optimism over interest rates

By Elizabeth Smith

NEW YORK: The Nasdaq rose on Tuesday on strength in semiconductor and fiber optics stocks and the market's supersonic Cisco Systems, due in part to lessening fears that the Federal Reserve may aggressively raise interest rates.

Nasdaq volume remained light as investors remained squeamish about moving back into the market.

"It's a slow day," said Michael Palazzi, who co-heads over-the-counter trading at CIBC World Markets in New York. "The Nasdaq futures coming in this morning had a great tone to them. Cisco is showing great leadership, plus we've got a rebound in semiconductors such as Applied Materials and PMC Sierra."

Nasdaq's composite index jumped 156 points, or 4.90 percent, to 3362. The market's index of top 100 stocks was stronger, up 178.68 points, or 5.76 percent, to 3280.12.

Brokerage reports about a slowing U.S. economy lifted hopes that the Federal Reserve would ease its campaign of interest rate hikes.

Merrill Lynch Chief Economist Bruce Steinberg said in a Tuesday report that the U.S. economy is showing signs of moderation, citing consumer spending, housing and industrial activity data.

The Fed is likely to tighten the closely watched Fed funds rate by 25 basis points on June 28, Steinberg said, but may defer increase if forthcoming data remains soft.

Tom Galvin, chief investment strategist for brokerage house Donaldson Lufkin & Jenrette, said the economy was switching gears. "Bulls like us believe that higher interest rates and shrinking money supply are already slowing the economy and, as a result, 50 basis points or less are left in the Fed's anti-inflation gun," he said.

Volume must escalate to signify a bona fide rebound in the Nasdaq, Palazzi said. "The small investor won't come in until they feel it's worth doing so," he said.

Cisco, the most heavily weighted stock in the Nasdaq composite, jumped 3-1/8 tot 58-1/8. Cell phone equipment maker Qualcomm Inc. was the most actively traded stock, up 5-1/4 to 71-3/8.

Intel , the world's No. 1 maker of computer chips, was up 5-1/8 at 122-11/16. Semiconductor equipment maker Applied Materials had surged 6-11/16 to 80-7/8. PMC Sierra gained 12-1/2 to 147-7/16. As a result, the Philadelphia Stock Exchange Semiconductor index had increased 6.87 percent to 972.18.

Fiber optics company JDS Uniphase Corp. was up 5-3/4 at 86-1/4. WorldCom also gained 1-1/16 to 38-1/4.

Warehouse retailer Costco Wholesale rose 1-1/8 to 32 after the stock had been oversold last week, according to equities analysts.

Telecommunications equipment maker Ditech Communications Corp. was still losing value, despite reporting positive earnings on Thursday. The stock topped the Nasdaq's net loss leaders at midday, down 5-5/16 at 82-1/2.

Splash Technology Holding ranked behind Ditech and had shed 3-3/16 to fall to 50-41/64. U.S. Bancorp Piper Jaffray had cut the stock Tuesday morning to a buy from a strong buy, citing a predicted slowdown in sales.

(C) Reuters Limited 2000.