US stocks: Blue chips fall, S&P flat as oil and defence weigh

NEW YORK - US blue-chip stocks retreated on Wednesday as oil prices vaulted above US$43 a barrel while news that China intended to curb overheated growth in its airline sector hurt aerospace and defence stocks such as Boeing Co.

Oil prices rose for a second day in a row after car bombs exploded in Saudi Arabia's capital and the US government reported another drop in winter heating fuel stockpiles.

Higher oil prices weigh on stocks because they can depress corporate profits and consumer spending.

"We got the reports of explosions in Saudi Arabia, and that, on top of the drawdown in oil inventories, saw a big jump in oil prices," said John Caldwell, chief investment strategist at McDonald Financial Group, part of Key Corp. "That took a bit of the wind out of the sails of the market."

The Dow Jones industrial average was down 25.35 points, or 0.23 per cent, to end at 10,829.19. The Standard & Poor's 500 Index dipped just 0.09 of a point, or 0.01 per cent, to close at 1,213.45. The technology-laced Nasdaq Composite Index inched down 0.19 of a point, or 0.01 per cent, to finish at 2,177.00.

The lackluster session came a day after all three indexes hit fresh highs for the year.

Trading remained light, with desks sparsely populated as many traders were away on vacation.

Around 926 million shares changed hands on the New York Stock Exchange, far below the 1.4 billion daily average for last year. About 1.5 billion shares were traded on Nasdaq, below the 1.69 billion daily average last year.

Advancers outnumbered decliners on the NYSE by about 9 to 7, while decliners outnumbered advancers by about 8 to 7 on Nasdaq.

"There's a lot of people out this week so it doesn't take much to move the market one way or the other -- and we had a nice run up yesterday so that gives us a little room to give some back," said Evan Olsen, head of equity trading at Stephens Inc.

US light crude oil futures for February delivery climbed US$1.87, or 4.47 per cent, to settle at US$43.64 a barrel on the New York Mercantile Exchange.

News that China said it would not approve new aircraft purchases next year in an effort to curb growth in the sector hurt aerospace and defence stocks.

Airplane manufacturer Boeing, currently discussing deals with China to sell the country its Boeing 7E7 wide-body jet, told Reuters that the country's decision to freeze orders in 2005 would have no impact on its ongoing talks. But the Dow component's stock fell 2.2 per cent, or US$1.18, to US$52.07.

United Technologies Corp., which supplies Boeing with jet engines, also weighed on the Dow, with its shares falling 0.7 per cent, or 78 cents, to US$103.96 while Honeywell International Inc. , the world biggest manufacturer of cockpit electronics, fell 1 per cent, or 37 cents, to US$35.70.

Meanwhile, defence contractor Lockheed Martin Corp., an S&P 500 constituent, fell 2.7 per cent, or US$1.51, to US$55.25. That followed US defence officials saying that The Pentagon was planning deep reductions in spending on the costliest fighter jet ever built, the Air Force's F/A-22 Raptor. Lockheed makes F/A-22 fighter jets.

"These are the normal risks of holding these groups -- this is why they're cyclicals -- defence spending comes and goes and shifts around a little bit," Caldwell said.

However, semiconductors managed to buck the downward trend, helped by Credit Suisse First Boston's publication of its list of top chip stocks for 2005. Topping that list were stocks such as Broadcom Corp., up 1.4 per cent, or 43 cents, at US$32.38, and Texas Instruments Inc., up nearly 2 per cent, or 43 cents at US$24.33.

The Philadelphia Stock Exchange semiconductor index , a widely followed benchmark for chip stocks, rose 0.89 per cent.

- REUTERS