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While you were sleeping: Cisco sinks market

Friday 12th November 2010

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A profit forecast by Cisco Systems that fell short of analysts’ estimates sent shares of the world's top manufacturer of routers and switches plunging, dragging other technology stocks on Wall Street lower.

Cisco CEO John Chambers said the company faced a “challenging economic environment” last quarter, attributing the drop to lower government spending in developed countries and market-share losses. The stock plunged as much as 17%.

More than US$23.5 billion was wiped from the company's market cap with about 370 million shares changing hands by 1240 ET - more than 7 times their 50-day moving average volume.

In early afternoon trading, the Dow Jones industrial average dropped 0.84%, the Standard & Poor's 500 Index declined 0.69% while the Nasdaq Composite Index shed 1.14%.

Cisco could be headed for its worst one-day percentage plunge since July 14, 1994, when its shares shed 17.71%, according to Thomson Reuters Datastream.

"This is the second quarter in a row where its outlook disappointed," Mark Bronzo, a money manager at Security Global Investors in Irvington, New York, said. "The market doesn't have a lot of patience for names like this."

S&P 500 technology companies lost 2% collectively, the biggest drop among 10 groups. Juniper Networks, F5 Networks, Riverbed Technology and Jabil Circuit all dropped.

In Europe, the Stoxx 600 was steady at 271.39.  Three stocks fell for each one that rose.

Bank of Ireland Plc led a drop in bank stocks.

Government bonds dropped in Ireland, Portugal and Spain amid comments by French Finance Minister Christine Lagarde yesterday that investors should share in the cost of safeguarding sovereign debt.

Ireland today warned about the jump in its borrowing costs to record highs. "The bond spreads are very serious and there is international concern throughout the euro zone about that," Irish Finance Minister Brian Lenihan said in Dublin.

The country is fully funded through the middle of next year. However, a Reuters poll of economists and bond strategists indicated they were pessimistic, with 20 out of 30 respondents saying Ireland was unlikely to make it through the end of 2011 without external assistance.

The Dollar Index, which measures its value against a basket of currencies, rose 0.74% to 78.25.

The euro fell 1% to US$1.3656, also declining against the yen and sterling amid concern over government debt problems in the euro-zone now focused on Ireland and the possibility of a bailout.

"The euro can't sustain even modest upticks right now," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said. "Europe never fully addressed these problems, and it's clear solvency issues in Ireland have not been resolved."

Commodities were mixed, though the Reuters/Jefferies CRB Index, which tracks 19 raw materials, shed 0.67% to 314.98.

Oil gained after OPEC’s raised its 2011 estimate of global oil demand growth by 120,000 barrels per day to 1.17 million barrels per day.

US crude for December was up 6 cents to US$87.57 a barrel.

Spot gold fell as low as US$1,397.75 an ounce before recovering to  US$1,401.20 at 1531 GMT against US$1,402.70 late on Wednesday.

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