FINANCIAL MARKETS : Stocks Fall a 3rd Day on Earnings Fear

Three trading days into the fourth quarter, the stock market seems to know only one direction: down.

Stocks fell broadly once again on Wednesday, spooked by concerns about corporate earnings and by another heavy selloff in technology shares.

The Dow Jones industrial average eased just 9.03 points to 4,740.67, but only because a rally in oil stocks supported the index.

In the broad market losers topped winners by 13 to 8 on the New York Stock Exchange. And in the Nasdaq market--home of many tech issues--sellers were clearly in control, with 22 stocks declining for every 12 rising.

The Nasdaq composite index slumped 18.18 points to 1,002.27. The index now has fallen 6.1% from its recent record high of 1,067.40, though it remains up 33.3% year-to-date.

Another decline in long-term bond yields on Wednesday, to 20-month lows, failed to halt the selling in stocks. In fact, some analysts say the continuing slide in yields may be making stock investors nervous that the economy is weaker than expected--which could bode poorly for third-quarter corporate earnings.

“Concern over the economy is outweighing a better rate environment,� said Bruce Bittles, market strategist at Morgan Keegan Inc.

Bond yields slipped despite two government reports suggesting an improving economy. Some traders seemed to pay more attention to Ford Motor’s report that car sales tumbled in September.

The 30-year Treasury bond yield ended at 6.43%, down from 6.45% on Tuesday and a 20-month low.

Yields “will stay at these levels and probably drift lower because the risk is the economy falters,� argues Matthew Alexy, chief market strategist at CS First Boston in New York. He said bond investors clearly expect the Federal Reserve Board to ease credit again before the year is over.

Bonds also may be benefiting from cash inflows as more investors exit the stock market, fearing that the latest selloff could turn into something significant.

Many analysts have long expected the stock market to suffer a “correction� after this year’s big gains. A classic correction could shave 10% to 15% off broad market indexes from their peaks. With the Nasdaq index down 6.1% so far, the selloff could get much worse and still be just a typical temporary setback in a bull market.

Among Wednesday’s highlights:

* Semiconductor stocks plummeted after influential SoundView Financial Group downgraded its opinion of five of the stocks to “hold� from “buy.�

Of the five, LSI Logic plunged 6 1/2 to 49 7/8, National Semiconductor fell 1 3/4 to 25, Zilog lost 1 to 40, Integrated Device Technology slumped 2 1/8 to 20 3/4 and VLSI Technology sank 3 1/8 to 28 5/8.

SoundView analyst Rick Whittington said he was anticipating a softening of prices for computer chips, as added manufacturing capacity helps meet demand, especially for memory chips.

* Among other tech issues, Intel lost 1 2/16 to 58 11/16, Micron Technology dove 4 3/8 to 71 1/8, Cadence Design slumped 2 to 37, Hewlett-Packard fell 2 1/8 to 80 7/8, Dell dropped 2 1/2 to 82 1/2, Microsoft sank 2 3/4 to 86 1/8 and Motorola gave up 2 7/8 to 72. Also, Apple dropped 1 1/4 to 36 3/8 on news that its chief financial officer will depart.

“We are early into a correction in technology stocks, there’s no question about that,� said Ray Hirsch, technology group director at IDS Growth Spectrum Advisor.

* Many industrial stocks continued to fall with tech issues, on fears that third-quarter earnings will reflect the weak economy.

Alcoa lost 1 to 49 1/2, Ford dropped 3/4 to 29 3/4, General Motors gave up 1 to 44 3/8, chemical firm Hercules slumped 1 5/8 to 54 1/2, Emerson Electric was off 3/4 to 70 3/4 and Illinois Tool Works tumbled 2 7/8 to 56 1/8.

* On the plus side, oil stocks rallied, which some traders said suggested a rush by nervous investors into shares that pay big cash dividends. Exxon gained 1 1/8 to 73 1/2, Chevron leaped 1 3/8 to 50 1/4 and Texaco added 2 to 66 3/8.

* Investors also continued to pour into some drug, food, financial and utility stocks, issues that are traditionally “safe havens� in difficult markets. Abbott Labs gained 1 1/8 to 44 5/8, Merck rose 1 1/4 to 59 1/4, Amgen added 1 1/2 to 49, H.J. Heinz rose 7/8 to 46 7/8, Pepsico was up 1 3/8 to 53 3/8 and BankAmerica gained 1 5/8 to 62 1/4.

“It’s a split tape, a split market,� said Joseph DeMarco, trader at HSBC Asset Management America, noting the flight from tech and industrial shares into traditional growth stocks. But some traders questioned how long those safe-haven stocks can keep gaining.

Elsewhere, the dollar eased as traders scaled back expectations of strong support for the currency from Group of Seven officials meeting this weekend.

In foreign stock markets, Tokyo’s Nikkei index inched up slightly. In Mexico City the beleaguered Bolsa index appeared to stabilize, easing 9.95 points to 2,267.13.