The seesawing of Pairgain Technologies' stock highlighted the perils that investors face when getting tips from Internet bulletin boards and chat shops, where postings are largely unregulated and rumours spread like wildfire.

Internet investors have been warned to be on their guard

Shares of Pairgain, a maker of high-speed access products used by phone companies, started trading in the Nasdaq stock market at $8.50 on Wednesday and rose as high as $11.13 before falling back and closing at $9.38, a gain of a mere 88 cents.

Nearly 13.7m shares changed hands, a heavy day of trading for the company's stock.

Bogus posting

The frenzy started when buyers went to a financial Web page sponsored by Internet portal Yahoo!.

The perpetrator of the scam posted a message on one of Yahoo!'s bulletin boards, saying Pairgain was about to merge and featuring an Internet link to an alleged news story on the company.

When investors clicked on the link, they were transferred to a new page, formated to look like the web site of the financial news service Bloomberg.

The page featured a story that was supposedly published by Bloomberg.

The bogus story said Pairgain was being acquired by Israeli-owned ECI Telecom Ltd. for about $1.35bn in cash and other compensation and the false news apparently sent investors scurrying to pick up Pairgain shares.

Bloomberg published its own story, denying the bogus feature and quoting an ECI spokesman as saying that company was not in talks to buy Pairgain.

A Bloomberg spokeswoman declined to comment beyond what was written in Bloomberg's real story.

'Onus on investor'

In a Pairgain statement, Chief Financial Officer Charles McBrayer said: "We have not announced an agreement with ECI."

A Yahoo official said that once the portal learned of the bogus story, it was immediately pulled.

"To some extent, a lot of the onus falls on the individual investor," said Mike Riley, senior producer of Yahoo Finance.

"We don't, by any means, encourage people to trade based on any one message on a board."