UPI - 7/29/2002
NEW YORK, Aug. 1 (UPI) -- Stock prices on the New York Stock Exchange and the Nasdaq Stock Market were sharply lower in busy trading at midday Thursday, knocked down by disappointing earnings results from Exxon Mobil and weak readings on the economy.
The blue-chip Dow Jones industrial average, which gained 56.56 points Wednesday, was down 176.30 points, or 2.06 percent, to 8,560.20. The tech-heavy Nasdaq composite index, which lost 15.93 points in the previous session, was down 33.34 points, or 2.57 percent, to 1,294.92.
The broader New York Stock Exchange composite index was down 9.96 to 481.41 while the Standard & Poor's 500 index was down 21.49 to 890.13.
The American Stock Exchange composite index was down 9.79 points to 827.52 while the Wilshire 5000 Index was down 195.29 to 8,421.65.
Big Board volume rose to an estimated 695.70 million shares from 631.80 million shares changing hands during the same period Wednesday.
Analysts said stocks fell as investors digested another barrage of surprisingly weak economic reports that fanned fears the nation's economy may not be able to recover as quickly as hoped.
The Institute for Supply Management said economic activity in the manufacturing sector grew at a slower pace in July as the group's manufacturing index fell 5.7 percentage points to 50.5 from 56.2 percent in June.
Most economists on Wall Street were expecting the index to ease to 55.0 percent during the month.
The index is closely watched by Wall Street because a reading below the key 50 level indicates the sector comprising one-fifth of the economy is shrinking.
A reading above 50 percent indicates that the manufacturing economy is generally expanding.
Norbert J. Ore, chairman of the Institute for Supply Management's Manufacturing Business Survey Committee, said, "The PMI declined, but still indicated growth as 12 industries reported improvement in July. The decline was primarily driven by a weak showing in July's new orders, which may be due to a pause in inventory replenishment."
And, the Commerce Department said construction spending fell in June to its lowest level in nearly two years, as spending fell in all major construction categories.
The government agency said total construction spending dropped 2.2 percent in June to a seasonally adjusted annual rate of $820.8 billion after falling 2.0 percent in May.
Construction spending fell in June to its lowest overall level since August 2000. Its monthly percentage change matched the one-month drop posted in March 2002.
Most economists on Wall Street were expecting construction spending to rise 0.3 percent in June.
The fall in construction spending follows mixed housing market data released recently.
Sales of new, single-family homes rose to a record level in June, but sales of existing homes plunged nearly 12 percent in the same month.
Meanwhile, the Labor Department said the number of workers filing first-time applications for unemployment benefits rose last week for the first time in three weeks, underscoring the Federal Reserve's view that the labor market remains "slack."
Initial jobless claims rose by a larger-than expected 20,000 to 387,000 in the week that ended July 27. The four-week-moving average of claims increased by 250 to 386,000.
The numbers surprised Wall Street, which had expected an increase of 18,000 initial claims.
The Labor Department noted that initial claims tend to fluctuate greatly at this time of year.
The Fed, in a report this week, described the labor market as "slack but relatively stable." Under the circumstances, economists say, the central bank is likely to hold its key interest rate at a 40-year low for the remainder of the year. The federal funds rate now stands at 1.75 percent.
In addition to the weak economic news, downbeat earnings forecasts and results from companies, including Adobe Systems and Exxon Mobil, also weighed down the market.
Adobe Systems cut its third-quarter profit outlook by as much as 25 percent and lowered its profit forecast by 10 percents.
Oil giant Exxon Mobil reported a 41 percent drop in quarterly earnings alongside a downturn in profit margins in its oil refining business.
Meanwhile, U.S. Treasury prices pushed higher. The 10-year bond rose 15/32 to 103 21/32. Its yield, which moves in the opposite direction of its price, fell to 4.40 percent from 4.46 percent late Wednesday.
Analysts said Treasury prices moved higher after the release of weaker-than-expected economic data as the news manufacturing and construction were sharply weaker than expected pressured stocks and boosted Treasury prices.
In Europe, stock prices ended sharply lower in active trading in London, Frankfurt and Paris. The London International Stock Exchange's blue-chip FTSE-100 index sank 195.2 points, or 4.60 percent, to 4,051.0. The German DAX index fell 124.16 points, or 3.36 percent, to 3,575.98 and the French CAC-40 index dropped 174.67 points, or 5.11 percent, to 3,240.71.
Analysts said stocks were pressured by concerns over the global economy, the fresh meltdown on Wall Street and after owners of Royal Dutch/Shell, the world's third-largest oil company, said it would cut 2,000 jobs as it posted a sharp drop in profit as the price of oil and gas tumbled and refining returns weakened.
Stocks were also pressured after Germany's Ifo institute on Thursday became the latest top think tank to cut its growth forecasts for the country, issuing a report with more bad news for Chancellor Gerhard Schroeder's re-election fight in September.
Ifo, which publishes the monthly Ifo business climate index seen as the best leading indicator for Europe's largest economy, lowered its forecast to 0.7 percent this year from the 0.9 percent it and Germany's five other top economic institutes predicted in April.
It cut its projection for 2003 growth to 2.3 percent from 2.4 percent.
The recovery from last year's downturn was still underway, but was very fragile and at risk from financial market turbulence caused by accounting scandals in the United States, Ifo said.
Earlier in Asia, prices on the Tokyo Stock Exchange ended lower as Wednesday's weaker-than-expected gross domestic product in the United States raised market concerns over the U.S.-led global economic recovery. Japan's blue-chip Nikkei Stock Average of 225 selective issues, which lost 125.78 points Wednesday, fell 84.43 points, or 0.9 percent, to 9,793.51.
Analysts said the market was pressured by the U.S. gross domestic product, which rose at a 1.1 percent annual rate in the April-to-June period, down significantly from the first quarter's revised 5.0 percent growth.
Trapped in a narrow range with neither positive nor negative cues, traders said institutions had to stay on the sidelines for the day. Trading was limited to individual investors looking to profit in the medium to long term, analysts said.
Many traders expect the market to remain quiet as Japan heads for the summer holiday season in the middle of August and with foreign players yet to return in numbers.
Elsewhere in Asia, prices on the Hong Kong Stock Exchange ended slightly lower despite Wednesday's late rebound on Wall Street. The blue-chip Hang Seng Index lost 87.34 points, or 0.9 percent, to 10,180.02, only marginally off its intra-day low of 10,175.08 and well below its best level of the session of 10,329.05.
Analysts said local investors remained cautious amid fears of a double-dip recession in the United States.
Prices also ended lower on the South Korean Stock Exchange, pressured by concerns over the U.S. economy. The Korea Composite Stock Price Index, which lost 6.09 points Wednesday, lost 10.19 points, or 1.4 percent, to 707.80.
Stocks also ended lower on the Taiwan Stock Exchange. The Weighted Index, which fell 64.66 points Wednesday, lost 23.79 points, or 0.50 percent to 4,916.59.
Elsewhere around the Pacific region, prices ended slightly lower on the Australian Stock Exchange. The blue-chip All Ordinaries Index, which added 2.10 points Wednesday, slipped 8.50 points, or 0.3 percent, to 3,024.10.
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