Microsoft Battered By Downgrades

Shares of Microsoft tumbled 11% Friday on multiple downgrades after the software giant reported earnings and guidance that that were below Wall Street forecasts.

Microsoft’s results for the fiscal third quarter that ended March 31 were below analysts’ estimates, but what caught the Street by surprise was the company’s plans to up fiscal 2007 spending by about $2 billion to better compete with the likes of Google .

With analysts and investors looking forward to 2007 releases like Windows Vista, the lowered earnings guidance for fiscal 2007 came as a big disappointment.

Morgan Stanley, CIBC and Lehman Brothers were among the Wall Street firms downgrading Microsoft on the news.

Nearly 600 million shares of Microsoft changed hands, 10 times the stock’s daily average. It was the stock’s biggest one-day decline in more than five years.

The broader market got some support from a first-quarter GDP reading that showed strong growth and low inflation. Business investment was strong, with equipment and software investment surging 16.4%, the highest growth rate in six years.

The Nasdaq fell 22 to 2322, the S&P 500 gained 1 to 1310, and the Dow lost 15 to 11,367. Volume declined to 2.51 billion shares on the NYSE, and 2.6 billion on the Nasdaq. Advancers led 19-13 on the NYSE, and 16-13 on the Nasdaq. Upside volume was 58% on the NYSE, and 28% on the Nasdaq. New highs-new lows were 171-98 on the NYSE, and 170-51 on the Nasdaq.

Western Digital , CommScope and Varian rose on their earnings reports.

Gateway , Affiliated Computer , Digital River , Overstock , Openwave and Semitool fell on their results.

Dot Hill plunged on the loss of some business with Sun .