Wall Street report: Tuesday close

MARKETS paused for a breather after a two-day rally that vaulted them to their highest levels since last July. Analysts attributed the selling to profit-taking.

The Dow Jones Industrial Average, up 480.69 points or 4.8% in the past two days, shed 153.41 points or 1.5% to 10,433.41. The Dow had started the day just 11% short of its record closing set on 14 January, 2000. The Nasdaq Index inched higher by 6.98 points or 0.4% to 1866.30 in its third straight day of gains.

Even the most bullish analysts cautioned that the selling was expected as markets rarely rise in a straight line. 'We do not consider the rally over, although we may need to consolidate some of the recent gains,' said Tobias Levkovich, chief institutional equity strategist at Salomon Smith Barney. He raised his year-end target for the Dow from 10,800 to 11,400, an 8% increase from current levels.

'We consider it quite likely that we can witness upside earnings surprises in the first quarter for many of the economically-sensitive names,' Levkovich said. Financial services and industrial companies topped the list of his favorite sectors.

Among financials, JP Morgan surrendered early gains to close up fractionally at $32.51. Industrial names that had been leading the market higher regrouped. Alcoa fell $1.13 or 2.9% to $38.43 and Boeing dipped 92 cents or 1.9% to $48.21.

Investors heartened by data on Friday showing the US economy recovering from recession faster than expected received more encouragement. A survey of the non-manufacturing or service sector showed it growing at its fastest rate in 15 months.

Broker downgrades may have been responsible for softness in some sectors. Retailers, which have had a strong run, retreated after CSFB said they might have reached full value. Wal-Mart, which has been near record highs, retreated $2.40 or 4.8% to $60.76, do-it-yourself chain Home Depot backed off $2.40 or 4.8% to $47.50 and rival Lowe's slid $1.65 or 3.8% to $41.65.

Intel helped bolster the tech sector as it rose 85 cents or 2.7% to $32.70 on positive broker comments. Microsoft came off 22 cents or 0.4% to $63.08 and Cisco Systems closed up slightly at $16.51.

Media shares benefited from upgrades by UBS Warburg. News Corp., singled out for positive comments, jumped 96 cents or 3.5% to $28.36. Walt Disney retrieved 48 cents or 2% to $24.04, but Viacom gave up some recent gains to close off 38 cents or 0.8% to $49.07.

Conglomerate Tyco International fell 92 cents or 2.8% to $32.22 on new suggestions, disputed by the company, that its accounting might not accurately reflect its cash flow.

Hewlett-Packard finished flat at $20.60 and fell 3% in after-hours trading after an influential advisory group recommended that shareholders approve the company's proposed $22bn (£14.5bn) merger with Compaq Computer. Compaq, down marginally at $10.58 in the regular session, rose 4% in extended hours.