Midday Report: Nasdaq Slides on Economy Worries

Reports of increasing layoffs and declining activity in the service economy pushed stocks lower by midday Thursday, with the Nasdaq Composite Index poised to end a four-day winning streak.

At midday, the Nasdaq Composite was down 63.36 at 2,157.24, dragged south by a US$1.25 loss in Cisco (Nasdaq: CSCO), which fell to $18.75 after rising Wednesday on an analyst recommendation.

The U.S. Department of Labor said Thursday that the number of people filing new claims for unemployment insurance rose last week to the highest level in five years. The news, which came a day before the department's closely watched monthly employment report, provided further evidence of economic weakness.

Adding to that view, the National Association of Purchasing Management (NAPM) said that its April index of conditions in the non-manufacturing sector fell 3.2 percentage points, to 47.1. A reading below 50 indicates contraction, according to the trade group.

Tech Rally Falters

Tech issues were lower across the board, as investors locked in profits following the sector's recent rally. Sun Microsystems (Nasdaq: SUNW) was down 75 cents at $19.69, Oracle (Nasdaq: ORCL) (Nasdaq: ORCL) was down 32 cents at $16.85, and JDS Uniphase (Nasdaq: JDSU) was down $1.78 at $22.07.

Computer maker Dell (Nasdaq: DELL) was down 98 cents at $25.75 following reports that more layoffs are coming at the company. Tom Meredith, Dell's senior vice president of business development and strategy, was quoted in news reports as saying Dell would be "ruthless" in cutting costs as it seeks to maintain profits while increasing its market share.

Handheld computer maker Handspring (Nasdaq: HAND) was down $2.51 at $14.99 -- with rival Palm (Nasdaq: PALM) dropping $1.32 to $8.44 -- following reports that Lehman Brothers predicted a price war between the two.

Lehman analyst Joseph To reportedly downgraded Handspring to buy from strong buy, saying that the company could suffer if it cuts its prices to match Palm promotions.

E-Tail Retreats

The E-Commerce Times Index was down 5 percent at midday, with declines in eight of its 11 e-tail issues, as investors stepped back after bidding Internet issues higher in recent days.

Travelocity (Nasdaq: TVLY) was down $2.93 at $32.57, eBay (Nasdaq: EBAY) was down $2.25 at $51.45, and Amazon.com (Nasdaq: AMZN) was down 57 cents at $16.54.

Buy.com (Nasdaq: BUYX) was down 14 cents at 59 cents, after reporting a 40 percent drop in revenue for the first quarter and warning of an even bigger drop in the current quarter. The e-tailer said it aims to be cash flow-positive by the end of the year as it continues to cut costs.