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Semiconductor Weakness Sends Stocks Lower

Weakness among chipmakers more than offset investors' early enthusiasm.
The markets fell Wednesday as weakness in the semiconductor industry and mixed earnings news offset cheer over Microsoft's decision to share its cash reserves with investors.

The session got off to a fast start, as Microsoft's plan for a stock buyback and an enormous dividend, announced after the bell on Tuesday, whetted buyers' appetites a day ahead of the company's earnings announcement. But anxiety over earnings reports and fears that a drop in chip orders could signify declining capital spending later this year sent prices lower as the day went on.

"Technology stocks are really dragging the overall market down," John Caldwell, chief investment strategist for McDonald Financial Group, part of KeyCorp, told The Associated Press. "But it's not tech alone. ... We're talking about a market that is more difficult to impress and very easily disappointed."

The Nasdaq fell 42.70, or 2.2%, to 1,874.37-- its lowest close since Oct. 24. The InformationWeek 100 fell even more, on a percentage basis, losing 7.43, or 2.6%, to 282.68. The Dow Jones industrials fell 102.94, or 1%, to 10,046.13, while the Standard & Poor's 500 index fell 14.79, or 1.3%, to 1,093.88. The Nasdaq 100 fell $1.03, or 2.9%, to $34.40 as more than 136 million shares changed hands.

Underscoring the sensitivity to outlooks, a drop in orders at Texas Instruments Inc., which matched estimates in earnings reported after the close Tuesday, raised anxiety about chip stocks. Because semiconductors are used in virtually all tech products, any weakness in that industry is seen as spelling trouble for the other parts of the sector. Texas Instruments, which makes chips for more than half the world's mobile phones, fell $1.13, or 5.2%, to $20.63, even though it tripled its profits over the same period a year ago and reported rising demand for its products. Intel fell 68 cents to $22.56.

Meanwhile, Microsoft rose 54 cents to $28.86 after announcing its plan to disburse up to $75 billion to shareholders through dividends and a stock buyback. With its legal troubles largely resolved, Microsoft executives said they finally felt free to spend part of its stockpile of cash.