By Elizabeth Lazarowitz
NEW YORK, Aug 27 (Reuters) - Stocks scraped their session lows in midday
trading on Monday, after Friday's blazing rally failed to erase investors'
jitters about dwindling corporate profits and a sluggish U.S. economy.
As the euphoria faded, some investors were locking in profits following the strong run-up.
``There is a lot of uncertainty out there and people are cautious,'' said Tony Dwyer, chief market strategist at Kirlin Securities. ``Since May, every rally has failed, and people are afraid this will be the same.''
On Friday, major market indexes posted their biggest gains in more than six weeks after Cisco Systems Inc. (NasdaqNM:CSCO - news) said business is stabilizing and strong new home sales indicated consumers are still holding up a key sector.
``We were due for a bounce. That seemed as good a reason as any on a Friday to get things going,'' said Charles White, president of investment firm Avatar Associates. ``Is it sustainable? Nothing's sustainable until you get some real palpable evidence and visibility on an economic recovery.''
Technology stocks were leading the way down, and the tech-laced Nasdaq Composite Index (^IXIC - news), was down 12.6 points, or 0.66 percent, at 1,904.20.
The Dow Jones industrial average (^DJI - news) was off 26.57 points, or 0.25 percent, at 10,396.60, and the broader Standard & Poor's 500 Index (^SPX - news) dropped 5.33 points, or 0.45 percent, at 1,179.60.
Wall Street is in for a thin and choppy market this week as many investors leave town early ahead of the long U.S. Labor Day weekend. Trading was light, with 388 million shares changing hands on the New York Stock Exchange and 533 million traded on the Nasdaq.
``I don't think we're going to have a clear direction until we have a turnaround in earnings, so we're just mulling around, waiting for portfolio managers to get back from vacation,'' said John Davidson, chief investment officer at Circle Trust Co, which oversees $8 billion.
The latest economic data offered little support, after the National Association of Realtors reported sales of U.S. existing homes fell 3 percent in July, as the slowing economy sapped demand.
Shares of Home Depot Inc. (NYSE:HD - news), the world's largest home-improvement retailer, took a hit in the wake of the report, falling $1.40 to $48.54.
More layoffs stung the market after farm equipment maker Deere & Co.(NYSE:DE - news) said it would could close several plants and cut 1,975 more jobs, bringing total layoffs to 3,225. Deere fell 10 cents to $43.85.
U.S. software giant Microsoft Corp. (NasdaqNM:MSFT - news) was in focus after it delayed the Japanese launch of its Xbox game console to Feb. 22 from late this year. Its stock seesawed and then slipped 16 cents to $61.89.
The most heavily traded stocks on Nasdaq were high-tech heavyweights like Cisco Systems (NasdaqNM:CSCO - news), down 27 cents at $17.98 and Sun Microsystems (NasdaqNM:SUNW - news), down 46 cents at $14.51.
Blockbuster Inc. (NYSE:BBI - news) sank after financial newspaper Barron's reported the growth of video on demand over the Internet may slow video rental and long-term gains in the stock price are likely in the past.
Blockbuster fell $1.49 to $20.46.
Wireless telephone company Nextel Communications Inc. (NasdaqNM:NXTL - news) said it will cut its debt load by $857 million by exchanging notes from its Nextel International Inc. affiliate for 21.6 million shares of Nextel common stock. Nextel slipped 8 cents to $12.46.
While the magnitude of Friday's rally raised hopes that the market has finally hit a key trough after more than a year of steady pummeling, some traders were doubtful that the gains will mark the beginning of a sustained upswing.
``I still think the line of least resistance is down,'' said James Volk, co-director of institutional trading at D.A. Davidson & Co.
``Most people are convinced the market's not going to rally until we get some visibility in terms of earnings and the economic outlook, and we're certainly not going to get that in the last week of August,'' Volk added.
On Friday, the Nasdaq gained 73.83 points, or 4.01 percent, to 1,916.80 -- its biggest rise since July 12, according to research firm MarketHistory.com. The Dow (^DJI - news) rose 1.9 percent -- also its biggest rally since since July 12. The broader S&P 500 climbed nearly 2 percent.
The rally came just days after stocks tumbled to lows unseen since early April. Stocks took a dive last Tuesday after the U.S Federal Reserve cut interest rates for a seventh time this year and gave little hope the sluggish economy is rebounding.
Year-to-date, the Nasdaq is still off a hefty 22 percent, the S&P 500 is down 10 percent, and the Dow is off 3 percent.
Later in the week Wall Street investors will be carefully scrutinizing economic reports, including data on consumer confidence on Tuesday, gross domestic product due on Wednesday, and consumer confidence set for Thursday.
They are also anxiously awaiting the European Central Bank's meeting on Thursday. The central bank is expected to cut rates by a quarter of a percentage point.