U.S. MARKET AVERAGES

Stocks opened in the positive, lifted by strong results released by software giant Microsoft. However, the positive sentiment generated by the earnings news was largely offset by the Commerce Department report which showed that the U.S. economy grew much less than expected in the fourth quarter. The economy grew at only a 1.1% annual rate in the fourth quarter of last year, the slowest pace in three years.

Microsoft (MSFT: chart) said its quarterly profit rose almost 6% as revenue climbed more than 9%, helped by its video-game unit and by strong demand for software used to run personal computers and corporate servers.

Procter & Gamble (PG: chart) released Q2 earnings rise of 29% with the profit growth partly attributable to the acquisition of razor and battery maker Gillette. The company raised its full-year guidance to $2.58 to $2.62 per share from its previous forecast of $2.54 to $2.60 per share.

J.P. Morgan downgraded Wal-Mart Stores Inc. to neutral from overweight, citing possible turbulence over the next 12 to 24 months with a new field organizational structure and upscale merchandise and marketing initiatives.

The broker upgraded Target Corp to overweight from neutral on innovative merchandise and sustainable, high-teens earnings-per-share growth.

The semiconductor sector stood out as the leading gainer in the eraly going, boosted mainly by Broadcom (BRCM: chart), up nearly 20% on earnings news. Energy stocks also moved to the upside in the early going with the oil service sector up about 2.3%.

The airline sector declined in early going, posting a loss of 1.9%, dragged by AirTran (AAI: chart) and Continental (CAL: chart), each down more than 3%. The weakness in airlines and a decline in railroad stocks sent the Dow Jones Transportation Average just under 1%.

The Dow Jones industrial average is up 5.20 points, the S&P 500 is ahead 1.35 points and the Nasdaq 100 is up 11.45 points.

Bonds moved higher on the economic concerns, with the yield on the 10-year Treasury note falling to 4.49% from 4.51% late Thursday.

MOVERS AND SHAKERS

Bebe Stores (BEBE: chart), clothing retailer, posted Q2 profit of $25 million, or 27 cents a share, compared with $24.3 million, or 26 cents a share, during the year-earlier period, beating estimates of earnings of 26 cents a share. The company reported quarterly revenue of $167.9 million, compared with $152.6 million a year ago, below expectations of revenue of $170 million. The stock gained 16.6%.

Broadcom (BRCM: chart), chipmaker, said that fourth-quarter profit more than doubled on 52% sales growth of its wireless chips used in consumer electronic devices and high-speed Internet networking gear. The company reported Q4 net income of $194.8 million, or 50 cents a share, up from $71.1 million, or 20 cents a share a year earlier. It also authorized an additional share repurchase program worth $500 million. The stock surged 20%.

Take-Two Interactive Software (TTWO: chart) was downgraded at Banc of America to sell from hold, with the broker citing numerous risks for the company, including lower earnings and over-valuation, as well as potential SEC investigations and accounting restatements. The firm also lowered its price target to $12 from $17. The company’s shares dropped 17.6%.

SanDisk (SNDK: chart), flash-memory developer, reported a Q4 profit that rose 72% from a year ago on increased demand for its digital media players resulted in higher sales of its flash-memory chip products. The company earned $134 million, or 68 cents a share, on $751 million in revenue, compared with a net income of $78 million, or 42 cents a share, on $549 million in revenue a year ago. The results exceeded analyst estimates of 62 cents a share, on revenue of $727 million. The company’s shares fell 10.7%.

ECONOMIC NEWS

The U.S. economy grew at its slowest pace in three years in the fourth quarter, according to a report from the Department of Commerce. The report showed that the gross domestic product for the quarter grew much less than economists had been expecting.

The Commerce Dept. said that its advanced reading of the fourth quarter GDP showed an annual rate of growth of 1.1 percent, the slowest rate of growth since the fourth quarter of 2002. Economists had expected growth of about 2.8 percent compared to the 4.1 percent growth seen in third quarter.

The deceleration in GDP growth in the fourth quarter was primarily due to a slowdown in consumer spending, an acceleration in imports, a downturn in federal government spending, and a slowdown in spending on equipment and software.

The slowdown in consumer spending played a big part in the deceleration seen in the fourth quarter, with consumer spending growth coming in at 1.1 percent for the quarter. This marked the slowest pace of growth since the second quarter of 2001.