By Amy Baldwin

Associated Press

NEW YORK – Investors newly enthusiastic about tech stocks extended the sector’s rally Thursday after Dell Computer became the second big high-tech firm in as many days to issue a positive earnings outlook. Blue chip stocks had a modest retreat.

Dell’s news, along with a similar forecast from Cisco Systems on Wednesday, bolstered investors’ confidence that the economy will rebound after last month’s terrorist attacks.

While the market finished well off its highs of the day as profit-taking set in, Wall Street maintained the positive tone that has defined much of this week’s trading.

The focus on tech hurt the Dow Jones industrial average, which fell 62.90 to 9,060.88 after having been up as much as 63 points. But the Dow’s loss was small compared to the 173 points it gained Wednesday to close above the 9,000 level for the first time since the Sept. 11 terrorist attacks.

The blue chips have regained 825 points, or 60 percent, of the 1,369 they lost in the first week of trading following the assaults on the World Trade Center and Pentagon.

Meanwhile, the broader market was mixed Thursday. The Nasdaq composite index rose 16.50 to 1,597.31 after advancing 88 points Wednesday, its biggest daily point gain since the attacks. The tech-dominated index was up as much as 60 points Thursday before giving back some ground.

The Standard &Poor’s 500 index slipped 2.66 to 1,069.62.

Analysts said the tech advance wasn’t surprising given the overall market’s losses following the attacks. But they don’t expect the market to move much higher for the remainder of the year, or until it’s clearer when the economy will recover and how the United States will retaliate for the assaults.

“This rally is basically about getting you back to where you should be – so long as nothing else terrible happens,” said Charles Pradilla, chief investment strategist for SG Cowen Securities.

Among Thursday’s winners were the two tech bellwethers that affirmed their earnings estimates. Dell rose $1.68, or 8 percent, to $22.32, while Cisco advanced 47 cents to $14.42.

Wall Street has rarely seen such positive outlooks even before the attacks, having had to grapple instead with profit warnings and layoff announcements. The market was especially encouraged that the upbeat news came from the tech sector, which has been hit the hardest by the slowing economy.

The Dow’s winners were mostly technology stocks as IBM rose 36 cents to $97.31, Microsoft advanced 21 cents to $56.44 and Intel rose 32 cents to $21.55.

Outside tech, the blue chips were mostly lower. Procter &Gamble fell $2.05 to $71.20, while Wal-Mart declined $1.23 to $51.50.

Investors are becoming increasingly confident that the market and the economy will recover in the wake of the attacks. Analysts said Wall Street’s growing optimism could best be seen in its preference Thursday for tech shares over blue chips.

While market watchers are encouraged by the market’s newfound strength, they cautioned investors against getting overly hopeful that stocks would be able to sustain the momentum.

“There is not a huge amount of upside from here. We are just going to tread water until we see what the economy does,” Pradilla said.

The tech sector could be particularly vulnerable, analysts said.

“The problem you have with tech stocks is you just have a tremendous amount of sellers at every price point up. You are going to see a lot of people who want their money back, especially as tech companies still have problems with things like excessive inventory,” said Richard A. Dickson, a technical analyst at Hilliard Lyons in Louisville, Ky. “The impetus to take what you can get out of these stocks is going to be pretty strong.”

Throughout the week, investors have been inspired by indications that the economy will improve despite the attacks. Buyers made Wednesday the market’s most upbeat day since the attacks, sending stocks soaring after President Bush urged Congress to approve an economic stimulus package that would be worth up to $75 billion. The market was also heartened by the Federal Reserve’s decision Tuesday to lower interest rates by half a percentage point and for the ninth time this year.

Advancing issues outnumbered decliners nearly 3 to 2 on the New York Stock Exchange. Volume was 1.56 billion shares, compared with the 1.67 billion shares traded Wednesday.

The Russell 2000 index, the barometer of smaller company stocks, rose 3.82 to 417.04.

Overseas markets were sharply higher Thursday with Japan’s Nikkei stock average finishing the day with a gain of 2.8 percent. In Europe, France’s CAC-40 climbed 4.3 percent, Britain’s FT-SE 100 rose 2.8 percent and Germany’s DAX index gained 2.1 percent.

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