updated 7/22/2004 10:27:31 AM ET 2004-07-22T14:27:31

Stocks plunged Wednesday, as weakness in the semiconductor industry and mixed earnings news offset cheer over Microsoft Corp.’s decision to share upwards of $75 billion of its cash reserves with investors.

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The tech-heavy Nasdaq composite index sank more than 2 percent to its lowest close in nine months, and the Dow Jones industrial average lost over 100 points.

Microsoft’s plan for a stock buyback and an enormous dividend whet buyers’ appetites a day ahead of the software bellwether’s earnings announcement, and started the session off on a positive note. But trading was subdued by anxiety over earnings reports and worries that a drop in chip orders could portend declining capital spending later in the year.

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Even Federal Reserve Chairman Alan Greenspan’s mostly bullish testimony before a congressional committee was not enough to keep stocks in positive range.

“Technology stocks are really dragging the overall market down,” said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. “But it’s not tech alone. ... We’re talking about a market that is more difficult to impress and very easily disappointed.”

The Nasdaq slumped 42.70 points, or 2.2 percent, to 1,874.37 — its lowest close since Oct. 24. The decline came even as Microsoft, its biggest component, posted a nearly 2 percent advance.

Other gauges saw their worst finishes since May. The Dow Jones industrials fell 102.94 points, or 1 percent, to 10,046.13. The Standard & Poor’s 500 index declined 14.79 points, or 1.3 percent, to 1,093.88. And the Russell 2000 index, which tracks smaller company stocks, plummeted 15.62 points, or 2.8 percent, to close at 548.57.

Although most companies have matched or beaten earnings expectations in recent weeks, investors have been reluctant to make commitments because of less-than-stellar outlooks. Analysts say slowing profits, lower consumer spending and uncertainty about inflation, terrorism and the presidential election could combine for a lackluster third quarter.

Many had hoped the Fed chairman would give the market more direction when he spoke before the House and Senate this week. Greenspan offered an upbeat assessment of the economy, but his repeated promise that the central bank would raise rates as aggressively as necessary gave investors some pause.

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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, and the Philadelphia Semiconductor Index plunged 3.7 percent. 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.

“It’s really the tale of two tapes today,” said Russ Koesterich, U.S. equity strategist with State Street Corp. in Boston. “Microsoft looks good ... but you’re getting more and more anecdotal evidence that you might have seen a peak in the semi cycle.”

Texas Instruments, which makes chips for more than half the world’s mobile phones, was down $1.13. or 5.2 percent, at $20.63, although it tripled its profits over the same period a year ago and reported rising demand for its products. Intel Corp. also stumbled, falling 68 cents to $22.56.

Meanwhile, Microsoft gained 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 gigantic stockpile.

Among the Dow’s few advancers, J.P. Morgan Chase & Co. added 42 cents to $36.82, despite a second-quarter loss on litigation costs linked to its role advising both Enron Corp. and Worldcom Inc. before the companies went bankrupt. Excluding those charges and another related to its recent merger with Bank One, J.P. Morgan Chase beat Wall Street’s estimates by 2 cents a share.

Decliners included Colgate-Palmolive Co., which slipped $1.62 to $55.00 after the consumer-products company posted unexpectedly weak results in North America. ImClone Systems Inc. tumbled 19 percent, or $15.29, to $65.44, after sales of its cancer drug Erbitux failed to meet expectations. And Illinois Tool Works Inc. declined $5.37, or 5.8 percent, to $86.75. The diversified manufacturer beat expectations, but failed to raise its forecast high enough to impress investors.

Declining issues outnumbered advancers more 3 to 1 on the New York Stock Exchange. Volume was moderate. Preliminary volume came to 2.07 billion shares traded, compared to 1.76 billion on Tuesday.

Overseas, Japan’s Nikkei stock average finished 1.6 percent higher Wednesday. In Europe, France’s CAC-40 closed up 0.8 percent, Britain’s FTSE 100 added 0.9 percent and Germany’s DAX index advanced 1 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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