US stocks: Shares drop on weak job growth, oil over US$55

NEW YORK - US stocks slid on Friday as investors worried about a faltering economy after a government report showed May payrolls grew at the weakest pace in 21 months and crude oil prices topped US$55 a barrel.

Apple Computer Inc. shares fell nearly 5 per cent and hurt the tech sector, after a website reported Apple was sitting on swelling inventories of its iPod digital music players. Apple helped drive the Nasdaq down more than 1 per cent and also weighed on the S&P 500.

Before the market opened, the Labor Department said only 78,000 jobs were added to US nonfarm payrolls in May, which was the weakest job growth since August 2003 and less than half what economists had forecast.

The Dow Jones industrial average dropped 92.52 points, or 0.88 per cent, to close at 10,460.97. The Standard & Poor's 500 Index fell 8.27 points, or 0.69 per cent, to end at 1,196.02. The technology-laced Nasdaq Composite Index slipped 26.37 points, or 1.26 per cent, to 2,071.43.

Weighing on the blue-chip Dow was International Business Machines Corp., which dropped 2 per cent, or US$1.56, to US$75.79. IBM, also known as Big Blue, was the Dow's biggest percentage decliner.

For the week, the Dow was down 0.77 per cent, while the S&P 500 dipped 0.23 per cent, and the Nasdaq shed 0.21 per cent.

"We're, in my view, heading into a profit deceleration cycle," said Jeffrey Saut, chief investment strategist at Raymond James Financial, of St. Petersburg, Florida. "I call it the foxtrot economy. You get fast, fast economic numbers followed by slow, slow ones." Overall, Saut said, stocks appear set for a fall.

"The market is as overbought as anytime in the past two years," Saut said. "I've learned the hard way, in that kind of economy, you take some chips off the table and sit back with some cash for a while." Other investors disagreed with that sentiment.

"The tone of the market in the last couple of weeks has felt better," said Arnie Owen, managing director of Merriam Curhan Ford & Co., of San Francisco. "There is a lot of cash on the sidelines that still has to be deployed." OIL JUMPS

Friday's climb in crude oil prices gave worried investors another reason to sell stocks, due to concerns that energy costs will crimp corporate profits and consumer spending.

US crude oil for July delivery settled at US$55.03 a barrel, up US$1.40, in response to strong demand for diesel and distillate fuels.

Consumer-focused companies like Wal-Mart Stores Inc. and Procter & Gamble Co., which are especially sensitive to rising energy costs, also slid. They helped pull the blue-chip Dow average lower.

APPLE, AIG AND BUILD-A-BEAR FALL

The tune for the tech sector was called by Apple, which fell 4.5 per cent, or US$1.80, to US$38.24 after a website, appleinsider.com, said the company is "overstocked on most iPod models with about a month remaining in its third fiscal quarter." The Web report, which cited unnamed sources, said, "Apple is believed to be sitting on its most significant inventory of iPod Shuffles since the player hit the market in February." An Apple spokeswoman said the company does not comment on "rumors and speculation."

AIG, which is being sued by US regulators over an accounting scandal, had its debt rating cut on Friday by Standard & Poor's. The rating agency noted AIG's recent disclosure that it had overstated net income by 10 per cent over the past five years.

Shares of AIG, a Dow component, slid 1.4 per cent, or 80 cents, to US$55.09.

The bearish sentiment even spread to companies with a warm and fuzzy side. Shares of Build-a-Bear Workshop Inc., a retailer of custom stuffed animals, plunged after the company lowered its earnings outlook for the second quarter and full year on sluggish sales. Build-a-Bear shares tumbled 20.8 per cent, or US$5.79, to close at US$22.11 on the New York Stock Exchange.

Only two of the 30 Dow stocks were up: Boeing Co., up 28 cents, or 0.4 per cent, at US$64.66 and Hewlett-Packard Co., up 4 cents, or 0.2 per cent, at US$22.72.

On Friday, the state-run Voice of Vietnam radio service reported Vietnam is expected to sign a contract to buy four Boeing 787 "Dreamliner" jets, worth around US$500 million.

Another Dow component, Verizon Communications, finished unchanged at US$35.17 on the New York Stock Exchange.

About 1.29 billion shares changed hands on the NYSE, below the 1.46 billion daily average for last year. About 1.68 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.

The number of shares that declined in value exceeded those that gained by a ratio of about 9 to 7 on the NYSE. On Nasdaq, decliners outnumbered advancers by about 19 to 11.

- REUTERS