US stocks: Market falls on PPI and Exxon

NEW YORK - US stocks dropped on Tuesday after a government report of a rise in producer prices last month boosted inflation worries and as a slide in Exxon Mobil Corp. shares dragged down blue chips.

The negative factors outweighed better-than-expected earnings from companies such as diversified manufacturer 3M Co., whose stock rose 3.1 per cent to US$74.71 on the New York Stock Exchange.

The September US producer price index rose 1.9 per cent, the biggest gain in more than 15 years, the Labor Department said. The core PPI, excluding food and energy prices, gained 0.3 per cent, exceeding the 0.2 per cent rise that economists had forecast.

Exxon Mobil's stock, a Dow component, dropped 4.4 per cent to US$56.30 after a block trade of more than 24 million Exxon shares crossed on the New York Stock Exchange around 1 p.m. EDT, according to Reuters data. The trade amounted to US$1.4 billion, and trading volume in the stock rose to triple its daily average.

The Dow Jones industrial average fell 62.84 points, or 0.61 per cent, to end at 10,285.26. The Standard & Poor's 500 Index dropped 11.96 points, or 1.00 per cent, to close at 1,178.14. The technology-laced Nasdaq Composite Index slid 14.30 points, or 0.69 per cent, to finish at 2,056.00.

After the closing bell, Intel Corp., the world's largest chipmaker, posted a higher quarterly profit. Its stock initially gained after the news, then turned lower and fell 2.2 per cent to US$23.20 on the Inet electronic brokerage system from a Nasdaq close at US$23.72.

Andy Bryant, chief financial officer of the world's largest chipmaker, said in an interview that Intel's ability to make enough microprocessors to satisfy demand had improved from last quarter, but it was still somewhat constrained in making enough chipsets to meet demand.

"You've got this supply issue and people want to see how they execute through the quarter," RBC Capital Markets analyst Apjit Walia said, referring to the chipsets. "I'm confident their chipset supply issues will get resolved."

During the regular session, investors' concerns about inflation prompted them to sell some stocks.

"What the PPI numbers are saying is a reflection of higher energy prices impacting manufacturers," said Scott Fullman, chief strategist at Investec (US) Inc., in New York.

"This could potentially have a negative effect on earnings and profit margins over the next several quarters."

US crude oil futures prices have retreated from a peak above US$70 a barrel in late August as Hurricane Katrina roared toward New Orleans. But the effect of high energy prices on the US economy is still making investors nervous.

Crude oil for November delivery fell US$1.16 to settle at US$63.20 a barrel as Tropical Storm Wilma was forecast to turn toward Florida, away from oil and natural gas facilities further west on the Gulf Coast.

Janet Yellen, president of the Federal Reserve Bank of San Francisco, said on Tuesday that prospects for core US inflation look favorable over the medium term, but "appropriate policy" is needed to ensure that outcome.

The Federal Reserve has raised interest rates 11 consecutive times since June 30, 2004, to curb inflation.

Yellen also said inflated home prices pose a risk to the economy, noting there is a "bubble" element to the housing market.

The Dow Jones Home Construction Index dropped 3.6 per cent.

On the Nasdaq, shares of Novellus Systems Inc. fell 12.3 per cent, or US$3.06, to US$21.83, a day after the semiconductor equipment manufacturer posted a sharply lower quarterly profit. The company's stock ranked among the Nasdaq's biggest percentage losers.

In other earnings news, Merrill Lynch & Co. said its quarterly profit climbed. Merrill Lynch shares advanced 0.2 per cent, or 12 cents, to US$61.21 on the NYSE.

International Business Machines Corp., the world's largest computer company, rose 1.1 per cent, or 89 cents, to US$83.48 on the NYSE, a day after it reported earnings that beat Wall Street estimates. Analysts at Citigroup raised their price target on IBM to US$100 from US$95.

Shares in automakers General Motors Corp. and Ford Motor Co. fell after analysts at Merrill Lynch lowered their ratings on the companies' stocks to "sell" from "neutral" and said the auto industry structure is "not stable." GM slid 3.2 per cent, or 97 cents, to US$29.12 and Ford declined 2.2 per cent, or 19 cents, to US$8.47.

Trading was heavy on the New York Stock Exchange, with 1.63 billion shares changing hands, above the 1.46 billion daily average for last year. About 1.51 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.

The number of declining stocks outnumbered those rising by a ratio of 2.6 to 1 on the New York Stock Exchange. On Nasdaq, declining issues beat advancing issues by about 2 to 1.

- REUTERS