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US STOCKS-Worry over profit outlook halts early burst

Published on Reuters

* Profit, economic worries hurt tech stocks

* U.S. Treasury says to pump $250 billion into banks

* Bank stocks advance on Treasury plan

* PepsiCo slumps on profit miss

* Dow off 0.8 pct, S&P 500 off 0.9 pct, Nasdaq off 2.7 pct (Updates to late morning)

By Ellis Mnyandu

NEW YORK, Oct 14 (Reuters) – The Nasdaq fell in choppy trading on Tuesday as investors sold technology shares on fears that fallout from the credit turmoil would hurt profits despite the U.S. government’s plan to invest in banks to shore up the financial system.

The Dow and S&P 500 were moderately higher after a sharp rise at the open. Concerns about the broad profit outlook overshadowed the Treasury Department’s plan to inject $250 billion in major banks to stabilize the financial system in hopes of averting further damage to the economy.

A profit miss by soft drink company PepsiCo PEP.N , whose shares were down 9 percent, added to worries over how consumer spending will hold up against declines in home values, stocks and tighter credit.

On Nasdaq, shares of chip maker Intel Corp (INTC.O) fell more than 5 percent to $16.02 before it reports quarterly results after Tuesday’s closing bell.

The semiconductor index was off nearly 4 percent, a day after Wall Street roared back from its worst week ever with one of its best single days ever on Monday.

“We may be trying to establish the floor with the credit crisis, and that’s why you had the euphoria in the last day and a half,” said Alan Lancz, president of Alan B. Lancz & Associates Inc investment advisory firm in Toledo, Ohio. “Now people are starting to look at how much damage the credit crisis has done to the economy and earnings.”

The Dow Jones industrial average .DJI rose 58.86 points, or 0.63 percent, to 9,446.47. The Standard & Poor’s 500 Index .SPX climbed 6.59 points, or 0.66 percent, to 1,009.94. The Nasdaq Composite Index .IXIC slid 24.42 points, or 1.32 percent, to 1,819.83.

Shares of software maker Microsoft Corp (MSFT.O) declined more than 5 percent to $24.17. Computer maker Dell DELL.O slide nearly 6 percent to $14.32.

“Tech is economically sensitive. The critical area now is what kind of follow-through we get. I think it’s going to be difficult because we’re now going to be looking at earnings numbers. Forecasts are probably too high and have to be cut,” said Lancz.

Pepsico shares $5.72 to $56.05.

Not all the earnings news was bad. Johnson & Johnson (JNJ.N), fueled by strong sales of consumer products and medical devices, reported third-quarter earnings that beat Wall Street expectations. Its shares rose 4 percent to $65.03.

Washington’s plan to take stakes in major banks mirrors steps already taken by Britain and announced by other governments around the world, including Germany and France, to stabilize the financial system and restore confidence after recent market turmoil.

Shares of Citigroup (C.N) rose 16 percent to $18.25. The S&P financial sub-index .GSPF was up 3.8 percent. (Editing by Kenneth Barry)