Wall Street volatile on tech worries

US stocks were volatile on Thursday after Cisco (NASDAQ:CSCO)'s downbeat outlook added to concerns about the prospects for corporate tech spending.

Wal-Mart (NYSE:WMT)'s January sales also proved a big disappointment but the retail sector shrugged off a batch of anaemic figures, helped by upbeat earnings guidance from JC Penney, the department store chain.

A slew of economic data provided little incentive for stocks to rally as weekly jobless claims fell less than expected, while pending home sales showed no sign of improvement.

At midday the S&P 500 was trading a fraction lower at 1,325.96 having fallen 0.7 per cent in early trading. The Dow Jones Industrial Average was down 0.2 per cent at 12,171.81 and the Nasdaq Composite fell 0.3 per cent to 2,171.81.

Marc Pado chief market strategist at Cantor Fitzgerald said short covering and technical trading had pushed stocks up "too fast and too far" last week but he was upbeat on the outlook for US equities. "I think the most likely scenario is that we reached a low in January and we are now in the base building process," he said.

Other investors were thin on optimism on Thursday as the Nasdaq slipped further into a bear market - a fall of more than 20 per cent from its recent peak - after Cisco's sales guidance unsettled investors.

Cisco said quarterly profit rose 7.2 per cent to $2.06bn, in line with analysts' estimates, but the shares sank 2.5 per cent to $22.51 after it projected 10 per cent sales growth for the fiscal third quarter, below expectations.

Many investors consider Cisco a bellwether for the sector and its cautious outlook prompted shares in a range of large-cap tech firms to drop. Hewlett Packard fell 3.6 per cent to $40.63 and Oracle (NASDAQ:ORCL) shed 2.3 per cent to $19.22.

Sluggish retail sales figures also weighed on the market but the sector rallied as investors were reassured by earnings guidance.

Wal-Mart's same-store sales rose only 0.5 per cent in January, much less than the 2 per cent increase Wall Street had expected and its February sales forecast offered little cause for excitement. The shares fell in early trading but later climbed 0.5 per cent to $49.05.

JC Penney, up 9.5 per cent at $47.86, helped sentiment improve after same-store sales declined less than forecast and it said fourth quarter earnings would be at the high end of its forecast range. Gap's shares also rebounded, up 4.8 per cent at $19.21 after its fourth quarter earnings outlook pleased investors. The S&P retail index gained 2 per cent to 396.95.

Elsewhere, upmarket retailer Nordstrom (NYSE:JWN) rose 1 per cent to $36.70 in spite of reporting a 6.6 per cent decline in same-store sales. Macy's, up 2.1 per cent at $24.45, helped reverse a rally on Wednesday when it said January same-store sales fell 7.1 per cent.

There was mixed news on the employment front as weekly jobless claims fell 22,000 to 356,000 but the reading was still far higher than many analysts had predicted. Jobless claims had surged the previous week to the highest reading in more than two years, but this time the market had expected a figure of around 340,000. The four-week moving average of first time claims rose 8,500 to 335,000.

"On balance, initial jobless claims have drifted higher, although at this point they remain below levels typically associated with outright recession," economists at Bear Stearns, said.

Pending home sales fell a weaker-than-expected 1.5 per cent in December according to the National Association of Realtors, and were down 24.2 per cent from the previous year. Homebuilder DR Horton, down 0.8 per cent at $14.69, posted a narrower-than-expected $128.8m quarterly loss.

In other earning news Pepsico said fourth quarter profit fell 30 per cent to $1.26bn from a year ago, when results were improved by a tax benefit. However, revenues rose 17 per cent to $12.35bn and the shares put on 5.4 per cent to $70.32.

Rating agency Moody's said fourth quarter earnings fell 54 per cent to $127.3m as revenues from structured finance and bond sale ratings slumped. However the result was slightly better than analysts had forecast and the stock surged 6.7 per cent to $35.75.

Exchange operators also enjoyed a bounce after an analyst said the market overreacted to a Department of Justice call for ownership for clearing houses to be broken off from futures exchanges. CME Group rose 8.6 per cent to $527.06 after falling 17.6 per cent the previous day.