US Economy: Lacklustre Google and Microsoft Results Puncture Wall Street's Fragile Good Cheer

American stocks completed their best two-day percentage gain since 2002 today but Wall Street's fragile good cheer subsided after the bell as earnings from Google and Microsoft failed to live up to investors' expectations.

A fall of more than $5 in the price of oil sent shares soaring on hopes that the cost of crude may have passed its peak. The Dow Jones Industrial Average leapt by 207 points to 11,446 bringing its two-day gain to more than 400 points.

But after the close of trading, Google released earnings which showed weakness in the number of "paid clicks" as internet users choose advertising links.

Although Google's profits were up by 35% to $1.25bn, the figures did not deliver the blow away gains which investors have grown accustomed to seeing at the internet search company.

"It's hard to love the numbers," said Colin Gillis, an analyst at Canaccord Adams.

"There's the initial shock of this being the best company in the space and it just fell short."

Google insists that it can weather the economic storm crossing the US on the grounds that key advertisers in areas such as household consumer goods tend to maintain spending on promotions even in tough circumstances.

Google's chief executive, Eric Schmidt, said: "Traffic and revenue have held up well despite uncertain economic conditions."

The company boasted of making more than 100 improvements in search quality over the last three months, including work on cross-language searches which bring up results from foreign on-line documents.

In unofficial after-hours trading, Google's shares dropped by 7.7% to $492.50.

The software empire Microsoft took a similar beating, falling by 6.2% to $25.81 in response to its first earnings report since founder Bill Gates retired from day-to-day management.

Microsoft's profits surged by 42% to $4.3bn on strong sales of Office and Windows packages but the company sounded a cautious note on challenging conditions.

"It won't hurt us significantly," said chief financial officer Chris Liddell. "It's what I would described as a tough environment. It's clear other companies around us are suffering."

In an evening of mixed news for the technology industry, IBM proved a bright glimmer by beating earnings forecasts with decent business in hardware and services.

But the US chipmaker Intel learned that it faces new accusations from the European Commission over allegedly anti-competitive practices against rival Advanced Micro Devices.

A statement of objections from the Commission alleged that Intel had paid computer retailers not to sell computers containing chips made by AMD, in addition to previous accusations that it behaved unlawfully in the wholesale market.

The EU's executive body said all the different types of misbehavior "reinforce each other and are part of a single overall anti-competitive strategy aimed at excluding AMD or limiting its access to the market".