Midday Report: Nasdaq Turns Lower on Weak Economy

An early rally in technology stocks ran out of steam by midday Tuesday, after a U.S. government report provided further evidence of economic weakness.

The Nasdaq Composite Index was down 1.73 at 2,171.84 at midday after the U.S. Department of Labor reported that worker productivity fell 0.1 percent in the first quarter, reportedly the first drop in six years. Unit labor costs, a measure of inflation, jumped 5.2 percent, the agency said.

Tech stocks got off to a strong start, fueled by a Morgan Stanley upgrade of bellwether Cisco Systems (Nasdaq: CSCO) ahead of the company’s quarterly earnings report, scheduled to be released after the close of trading.

Cisco was up 73 U.S. cents at $19.98 at midday after Morgan analyst Christopher Stix raised his rating on the stock to outperform from neutral, saying he has “increased confidence” in the company’s enterprise business.

Cisco has announced big contracts with China Telecom and Global Crossing in recent days, which should boost the company’s core router business, Stix wrote in a note to investors.

Dell Falls on Layoffs

Dell Computer (Nasdaq: DELL), meanwhile, had fallen 93 cents to $24.98 by midday. Late Monday, the computer maker said it will lay off 3,000 to 4,000 workers over the next two quarters as it tries to cut costs in a weak market for personal computers.

Ciena (Nasdaq: CIEN) was up $3.73 at $59.01 after announcing a deal to sell more than $150 million worth of optical systems to broadband communications company Tycom, which is building an undersea network to connect six continents.

Broad Decline

Blue-chip stocks traded lower all morning, leaving the Dow Jones Industrial Average down 97.60 at 10,837.57 by midday. The Standard & Poor’s 500 stock index was down 8.34 at 1,255.17.

The E-Commerce Times Index was unchanged at midday. Amazon.com (Nasdaq: AMZN) was down $1.24 at $15.68 after Prudential Securities repeated a sell rating on the e-tailer’s shares, saying the company’s customer base may not be as large or as secure as some investors think.

Priceline, Peapod Percolate

Priceline.com (Nasdaq: PCLN) was up 4 cents at $5.34 after the e-tailer said it was replacing its chief executive officer, Daniel Schulman, with its chairman, Richard Braddock. Braddock said the company is on track to meet its goal of posting a pro forma operating profit in the second quarter.

Online grocer Peapod (Nasdaq: PPOD) picked up 7 cents to $1.46 after announcing an agreement to turn over its packing and shipping operations to NetGrocer.com in order to focus on local markets.

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