Corporate America began to believe the only way was up. Then the rally lost its fizz

A rally on Wall Street, inspired by upbeat results from blue-chip names such as Coca-Cola, was only partly successful yesterday as the Dow endured another volatile session. After soaring 250 points in morning trading, the leading US index closed just 66.11 points better at 8,539.22. In London, the FTSE 100 index, which took its lead from the early optimism in New York, closed up 168.7 points at 4,190.6.

The positive tone from parts of corporate America ensured the Dow avoided an eighth successive day of falls but was undermined by continuing problems within technology-related sectors and news of thousands of job losses.

The Bush administration did its best to argue that economic revival lies around the corner. Glenn Hubbard, its chief economist, told a Congress committee that economic recovery is "basically on track, with the possible exception of business investment. What I can tell you is the fundamentals of the US economy are very, very good."

Alan Greenspan, chairman of the Federal Reserve, appearing for the second day before the same committee, struck a characteristically ambiguous note. He said the US economy was poised for "reasonably good expansion" and added: "We're not getting a surge in the economy - but we didn't expect it. Are there problems? There are always problems."

The US technology sector demonstrated those problems as Intel, the computer chip group, announced 4,000 job losses yesterday and missed its quarterly earnings estimates. Motorola also cut its forecast of mobile phone sales from 420m to 400m, blaming "lower economic activity". Meanwhile Apple shares fell 13% as it issued a profits warning, while chief financial officer Fred Anderson said the fourth quarter would "continue to be a tough economic environment".

Coca-Cola, which this week took a lead in improving standards of corporate governance by reforming its accounting treatment of share options, gave the most rosy picture. It reported a 15% increase in quarterly revenues to $5.37bn (£3.42bn), with most growth in North America and Asia.

Chief executive Douglas Daft said the performance was "satisfactory, especially in light of the current economic climate".

Ford, which is six months into a $9bn restructuring programme, reported a return to profits in the second quarter as its cost-cutting measures began to pay off. Ignoring one-off items, the company swung from a loss of $551m to a profit of $610m and described the second quarter as "an important leg on Ford's journey to financial health". A worrying note was an 11% fall in US automotive sales in June.

Banking twins - JP Morgan Chase and Citigroup - reported strong performances from their consumer businesses, such as credit cards and retail banking.

As expected, the performances of the investment parts of the operations were weak. Citigroup suffered $406m of loan losses from Argentina and its telecoms portfolio, while JP Morgan revealed that its non-performing loans - excluding its exposure to bankrupt energy firm Enron - had climbed to $3.25bn from $2.5bn a year ago. Marc Shapiro of JP Morgan Chase said: "I think it's reasonable to predict that the outlook for capital markets will be weak for some time to come, that's why we're aggressively cutting expenses."

In the aerospace sector, Northrop Grumman said it saw "another solid quarter" while Boeing beat forecasts but said it delivered 112 new aircraft, down from 141 a year ago, as airlines struggled following the September 11 attacks. Honeywell, whose interests include aircraft electronics, said it expected flying hours to recover to pre-September levels by the end of this year. However, it continued its aggressive cost-cutting programme by announcing 2,000 job losses on top of the 4,000 already cut.

Peter Oppenheimer, manag ing director of investment strategy at HSBC, said US leaders appeared to be talking up confidence to get momentum into the stock market. "They want to emphasise the good news to stem the seemingly endless downward moves markets. A rally will last for a while, possibly, but the question is how sustainable it is and whether valuations have got down to a level that is sustainable."