Wall Street: Thursday close

UNUSUALLY sharp criticism of the world's biggest company by the world's biggest bond fund manager helped send blue-chips lower for a second straight day.

A $20bn (£13bn) drop in the market value of conglomerate General Electric contributed to the Dow Jones Industrial Average falling 21.73 points or 0.2% to 10,479.84. The Dow had been down nearly 150 points early after dropping 133 points on Wednesday on fears that America's central bank would raise interest rates to rein in an economy possibly rebounding so rapidly it would run the risk of re-igniting inflation. Renewed hopes of a U-turn in tech profits lifted that sector in late trading, driving the Nasdaq up 35.96 points or 2% to 1868.83.

The volley aimed at GE unsettled investors in the wake of Enron's collapse and worries that many companies may have been hyping their profits. Bill Gross, who manages Pimco's premier bond fund with $52bn under management, said GE was pursuing a strategy followed by failed conglomerates of the '60's, including bankrupt steelmaker LTV.

'GE is a conglomerate financed by a money machine,' Gross said. 'It grows earnings not so much by the brilliance of management or the diversity of their operations, as Welch and Immelt claim, but through the acquisition of companies.'

Gross said the acquisition strategy employed by GE's recently retired chief executive Jack Welch and his successor Jeffrey Immelt had puffed up profits and pushed the company's short-term commercial paper to 'extreme' levels, three times higher than normal. A spike in interest rates would render GE vulnerable, Gross said.

GE acknowledged that its acquisition strategy had helped its profits and that it was shifting away from short-term commercial paper. GE's shares, down 2.8% on Wednesday as Gross's comments became known, tumbled another $1.35 or 3.5% to $37.45.

New economic data, on balance, added to the case that the Federal Reserve would be forced to raise official interest rates by mid-year. Consumer price inflation came in at 0.2%, but showed a higher-than-expected increase of 0.3% when volatile food and energy prices were excluded. New jobless claims dropped a larger-than-expected 12,000 last week.

The one number showing less drive in the US economy came from the independent Conference Board, which said that its index of leading indicators was flat in the latest period, after four straight monthly increases.

But Conference Board economist Ken Goldstein said the data was not abnormal for the early stages of a recovery. 'The US economy has quickly turned from recession and is now firmly in recovery,' he said. 'The road ahead is far from smooth, with sluggish profits and weak export demand restraining growth.'

Financial services shares retreated again. American Express shed 82 cents or 2% to $41.02. JP Morgan lost 40 cents or 1.1% to $34.79.

Merger partners Hewlett-Packard and Compaq came up mixed after shareholders purportedly endorsed the controversial $21bn merger. H-P recovered 30 cents or 1.7% to $18.50. Compaq closed down five cents or 0.5% at $10.77.

Apple Computer tumbled 65 cents or 2.6% to $24.27 after an analyst warned that iMac sales could fall after higher component costs forced the company to raise prices.

AOL Time Warner came down 55 cents or 2.2% to $24.65 as Lehman analyst Holly Becker said she thought the company would be held back by its exposure to a weak internet sector.

Big techs saw strong buying the last two hours of trading, with Intel surging 87 cents or 2.9% to $31.40. Cisco Systems firmed 47 cents or 2.9% to $16.49.

Software companies shrugged off a call from analysts at CSFB, who said that company executives they had talked to had seen few signs of a recovery in demand. Microsoft rose $1.26 or 2.1% to $61.36 and arch rival Oraclegained 61 cents or 4.9% to $13.15.

Among Dow components, Boeing reversed an early loss to close up 64 cents or 1.4% to $47.67, DuPont eased 74 cents or 1.5% to $48.19 and do-it-yourself chain Home Depot was marked down 59 cents or 1.2% to $49.05.