By Nikolaj Gammeltoft and Elizabeth Stanton
(Bloomberg) – U.S. stocks retreated after disappointing results at technology companies offset a government report showing the economy grew last quarter at the fastest pace in six years.

Microsoft Corp. helped lead technology shares to the biggest drop among 10 groups as Chief Financial Officer Peter Klein said the company has yet to see a recovery in spending on enterprise software. SanDisk Corp., the biggest maker of flash- memory cards, slid 13 percent after its sales forecast fell short of some estimates.

The S&P 500 slipped 0.7 percent to 1,076.89 at 3:01 p.m. in New York. The Dow Jones Industrial Average lost 26.68 points, or 0.3 percent, to 10,093.78. The Nasdaq Composite slipped 1.4 percent to 2,147.69.

“Expectations have really been high,” said David Chalupnik, who oversees $8 billion as head of equities at First American Funds in Minneapolis. “Earnings have been coming out very strong, but it hasn’t been able to drive the market higher. The best example is Microsoft. They report very good numbers and the stock is down today.”

U.S. shares retreated yesterday, sending the S&P 500 to an almost three-month low, after Qualcomm Inc. lowered its sales forecast and speculation mounted Greece won’t be able to finance its budget deficit.

January Barometer

The S&P 500, poised for its third straight weekly drop, has tumbled 5.9 percent from a 15-month high on Jan. 19 after President Barack Obama called for limits on risk-taking by banks and China moved to restrict lending and cool economic growth.

The index is down more than 3 percent year-to-date, poised for its first monthly decline since October and the biggest since it plunged 11 percent in February 2009.

The performance of the S&P 500 in January is a reliable predictor of how it will do during the year, according to the Stock Trader’s Almanac. Before last year, when the index dropped 8.6 percent in January and rose 23 percent for the year, the so- called January barometer registered only five major errors since 1950, according to the almanac.

The S&P 500 rose as much as 1.1 percent earlier after fourth-quarter economic growth and a gauge of business performance in January beat projections. The Commerce Department said the economy grew at a 5.7 percent rate in the fourth quarter, compared with a median forecast of 4.8 percent in a Bloomberg survey of economists. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 61.5 from 58.7 in December. The median forecast was for a drop to 57.2.

Recovering Economy

The U.S. economy is recovering from its longest recession since the Great Depression, caused by bank losses stemming from the collapse of the subprime mortgage market. Corporate profits are estimated to have increased in the fourth quarter from the year-earlier period for the first time since the second quarter of 2007, ending a record nine-quarter earnings slump.

Microsoft, the world’s largest software maker, fell 4.6 percent to $27.82 and was the biggest drag on the S&P 500. Fiscal second-quarter profit and revenue topped analyst estimates as consumers stepped up personal computer purchases during the last three months of 2009.

SanDisk, the biggest maker of flash-memory cards for digital cameras and mobile phones, fell 13 percent to $24.94. The company anticipates sales of $875 million to $950 million in the first quarter, Chief Financial Officer Judy Bruner said yesterday on a conference call with analysts. The average estimate in a Bloomberg survey is $931 million.

‘Negative Nabobs’

S&P 500 companies that have released results posted an estimated combined profit of $16.83 a share, according to Bloomberg data. That compares with a loss of 9 cents a share in the year-ago quarter, according to S&P. Of the 196 companies in the S&P 500 that have reported earnings since Jan. 11, 156 have beaten analysts’ estimates, according to Bloomberg data.

“The negative nabobs are just wrong,” said William Smead, chief executive officer of Smead Capital Management in Seattle, which oversees $170 million. “These companies are all so lean that as the economy surprises to the upside, the earnings power is going to be incredible.”

Wal-Mart Stores Inc. gained 2.2 percent to $53.79. The shares were raised to “buy” from “neutral” at Goldman Sachs, which forecast earnings at the U.S. retailer will increase on the back of cost-cutting and profit margin growth, while the valuation of the shares is “compelling.”

PNC, DuPont

PNC Financial Services Group Inc. added 3.8 percent to $56.22. Bank of New York Mellon Corp. is in talks to buy PNC’s global investment-servicing unit for as much as $2.5 billion to add hedge-fund and mutual-fund clients, said a person familiar with the matter.

DuPont Co. rose 2.2 percent to $33.01. The third-largest U.S. chemical company said it plans to open its first commercial-scale plant for making ethanol from corn cobs in 2013 with Denmark’s Danisco A/S.

Chevron Corp. fell 1.3 percent to $72.28. The second- biggest U.S. energy company reported its biggest fourth-quarter profit decline since 2001 and fell-short of analyst estimates for earnings per share.

Avery Dennison Corp. slumped 15 percent to $32.56 for the biggest drop in the S&P 500. The world’s largest label maker reported fourth-quarter earnings excluding some items of 44 cents a share, missing the average analyst estimate in a Bloomberg survey by 35 percent.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.netElizabeth Stanton in New York at estanton@bloomberg.net

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