US stocks: Markets fall on weak earnings

NEW YORK - US stocks carved out fresh lows for 2005 on Tuesday as earnings season got off to a disappointing start.

Aluminum producer Alcoa Inc. missed Wall Street expectations and chip maker Advanced Micro Devices Inc. issued a sales warning.

However, after the market closed, tech bellwether Intel Corp. rose 3 per cent to US$23.17, after it reported higher-than-expected revenue and profits for the last quarter.

"I think it's exceptional across the board," said Stephen Leeb, president Leeb Capital Management in New York, who has US$110 million assets under management, including Intel.

"Revenue was better than expected. The number that strikes me is that they are projecting 2005 gross margin of 58 per cent, and I don't think anyone was near that. It's a terrific report. Intel is clearly the bellwether, and this report could easily turn the tech sector," Leeb said.

The Dow Jones industrial average closed down 64.81 points, or 0.61 per cent, at 10,556.22. The Standard & Poor's 500 Index was down 7.26 points, or 0.61 per cent, at 1,182.99. The Nasdaq Composite Index fell 17.42 points, or 0.83 per cent, to 2,079.62.

All three indexes closed at lows for the year, with the Dow and S&P at their lowest in more than four weeks, while Nasdaq ended at its lowest in seven weeks.

Trading was active, with 1.4 billion shares changing hands on the New York Stock Exchange, just below the 1.46 billion daily average for last year. About 2.19 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year. Decliners outnumbered advancers on the New York Stock Exchange by about 2-to-1 and by about 7-to-3 on Nasdaq.

Hewlett-Packard Co. dragged on the Dow and the S&P 500, tumbling 3.6 per cent, or 76 cents to US$20.05, after Morgan Stanley lowered its investment rating on the computer maker to "underweight" from "equal weight."

Meanwhile, chip stocks were bruised by a warning late Monday from AMD that its fourth-quarter revenue would fall below Wall Street's expectations. AMD slumped 26 per cent, down US$5.27 to US$14.86, while the Philadelphia Semiconductor Index was down 2.5 per cent.

"The biggest damper on the market was semiconductor stocks," said Robert Drust, managing director of listed trading regional investment bank Wedbush Morgan. "People were looking to maybe build some positions and were after some favorable indications from them -- but the AMD news blew that out of the water."

Apple Computer Inc. also fell, down 6.4 per cent at US$64.56. The company said it sold 4.5 million of its iPod portable digital music devices during the 2004 holiday quarter -- slightly below some Wall Street estimates -- as it announced plans to launch new products.

Dow component Alcoa, which kicked off the earnings reporting season on Monday, fell nearly 3 per cent to US$29.65 after reporting quarterly profits that were below analysts' estimates, partly due to higher energy costs.

Steel stocks took a beating after CIBC World Markets lowered its investment rating on the steel sector, citing expectations for price pressure. Steel maker United States Steel Corp. fell 5.4 per cent, or US$2.65 to US$46.34.

Oil prices closed slightly higher. NYMEX crude for February delivery settled 35 cents higher at US$45.68 a barrel, although off its session high of US$46.15. Higher oil prices generally dampen equities because of the impact on corporate profits and consumer spending.

In other news, President George W. Bush's Social Security plans had an impact on the market earlier in the session, said Drust.

"I think the market sold off a little when Bush was first talking but then came back -- I think the Social Security plan about how he wants to be able to invest in the market would certainly be a positive for stocks," said Drust.

Bush's planned restructuring would allow workers to channel some of their payroll taxes into private accounts invested in stocks and bonds. That could help Wall Street as banks stand to make billions of dollars from the millions of private accounts that could be created in the process.

- REUTERS