(Updates to mid-morning)
By Denise Duclaux
NEW YORK, Sept 27 (Reuters) - Blue chips sagged at mid-morning on Friday after sour calls on General Electric Co. and a bleak outlook from cigarette maker Philip Morris Cos. Inc. , but tech stocks turned positive as professional investors readied for the end of the quarter.
Analysts cut earnings estimates and investment opinions on GE after a closer look at the conglomerate's numbers revealed weak spots. Philip Morris, the world's No. 1 cigarette maker, slashed its full-year outlook. Phone company SBC Communications Inc. added to the Dow's woes after saying it will cut about 6 percent of its work force.
"The market wants to believe in the upside, but it doesn't have enough tangible proof that the earnings picture has turned," said Paul Cherney, chief real-time market analyst at S&P Marketscope.
But window dressing helped lend support to the market and lifted the Nasdaq out of negative territory. Monday is the last day of the third quarter, which could bring swings in the market as money managers dress up their portfolios by dropping the quarter's losers and adding winners.
The blue-chip Dow Jones industrial average fell 89 points, or 1.12 percent, to 7,907, after a two-day run-up. The broad Standard & Poor's 500 Index lost 4 points, or 0.55 percent, to 850. The technology-laced Nasdaq Composite Index rose 7 points, or 0.59 percent, to 1,228, after falling at the open.
GE fell $1.43, or more than 5 percent, to $24.96. Lehman Brothers and Credit Suisse First Boston cut their ratings and estimates on GE a day after it held a conference call with analysts. The two investment banks said a recovery in such "short-cycle" businesses as its plastics unit seems to have stalled and its finance unit is under pressure.
Philip Morris sank $4.67, or more than 10 percent, to $38.06. The company slashed its full-year outlook, saying that despite heavy promotions of its premium-priced brands, consumers have turned to deep-discount rivals.
SBC fell $1.45, or more than 6 percent, to $20.45. The company said it will cut 11,000 jobs, or about 6 percent of its work force, and slash capital spending to offset pressures from the weak economy, competition and regulations.
Chip equipment stocks helped boost the Nasdaq. KLA-Tencor Corp. rallied $1.05 to $29.46. Applied Materials Inc. rose 53 cents to $12.27. Teradyne Inc. perked up 37 cents to $9.67.
Citigroup Inc. , seeking to end probes into its stock-research practices, added 94 cents to $30.45. The financial giant will meet with federal regulators Friday to propose a settlement that includes plans to sever ties between its research and investment-banking businesses, The Wall Street Journal reported.
Children's Place Retail Stores Inc. tumbled $5.09, or more than 31 percent, to $11.05. The company warned that earnings will fall far short of Wall Street forecasts in the second half of the year because of plummeting sales and problems with its fall merchandise.
Drugmaker Wyeth sank $5.50, or more than 14 percent, to $32.95. The company warned earnings for the year will fall short of expectations, as sales of its flagship hormone replacement products slowed after prominent medical journal articles questioned the safety of the drugs.
The market barely budget after a fresh report showing that U.S. consumer sentiment dropped for a fourth month in September. The University of Michigan's final September consumer sentiment index fell to 86.1 from 87.6 in August, market sources said on Friday. That was slightly above economists' forecasts for a reading of 85.9.