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Uncertainty slams tech stocks

Wall Street endured another roller-coaster session Monday, with market averages recovering from punishing losses and finishing only moderately lower. The market's volatility underscored investors' nervousness, particularly about high-tech stocks.

At its low point, the Nasdaq Composite Index wiped out virtually all the spectacular gains it piled on from early November until March 10, when it peaked at 5,048.62. Although bargain hunters salvaged the session, analysts say the index remains highly vulnerable amid fears that corporate earnings will be hurt by rising interest rates.

The Nasdaq closed down 26.19 at 3,364.21. At its low, the Nasdaq was off nearly 218 points at 3,172.65 _ a level not seen since last fall, when the index began its record-breaking ascent.

The Dow Jones Industrial Average nearly matched the Nasdaq in volatility, plummeting more than 250 points before clawing back and finishing down 84.30 at 10,542.55. The Standard & Poor's 500 fell 6.23 to 1,400.72.

The latest wave of worry about technology stocks dominated trading. Analysts said investors have decided that their exuberance for high-tech and Internet stocks, which gave the Nasdaq an unprecedented 86 percent gain last year, was either unjustified or premature given the upward trend in interest rates.

"The specter of inflation brings to a focus the importance investors need to place on earnings, or the lack thereof," said Michael K. Farr, president of financial consulting firm Farr, Miller & Washington in Washington, D.C.

Higher interest rates can hurt corporate profits by raising borrowing costs. Since many newer technology companies have slim earnings, some investors feel they will be most compromised by rising rates.

Many fledgling technology companies were knocked lower in April, when the Nasdaq sustained its initial wave of selling. This time, investors focused their ire on the most established names in technology. Oracle fell $2.25 to $67.81, Microsoft fell 88 cents to $64.19, and Motorola fell $2.06 to $87.88.

"We think the correction for technology stocks still has further to go," said Thomas McManus, equity portfolio strategist at Banc of America Securities in New York. Even the bellwether names, which attracted investors in the wake of April's technology sell-off, are now under escalating pressure, he said.

Many analysts are holding to the view that the current weakness is washing out the exuberance that dominated the market at the close of 1999 and in early 2000. But with the damage mounting, investors are struggling to determine which technology stocks, if any, are worthy of their still-high prices.

Analysts said many of the fledgling companies whose prices soared at the height of the technology boom may never recover. More established companies, however, remain solid investments and are becoming relative bargains. Their reduced prices helped lure buyers late in Monday's session.

"The fundamentals of the technology sector are still there," Farr said. "But no longer will being a dot-com get you a following. You have to have strong, growing earnings and a clear business plan."