US stocks: Shares fall on London blasts

NEW YORK - US stocks slid on Thursday as a second string of bomb attacks on London's transportation system this month overshadowed a drop in oil prices and a decision by China to revalue its currency.

After the closing bell, shares of Microsoft Corp. fell 2 per cent to $25.94 after the world's largest software producer gave a revenue forecast that fell short of Wall Street estimates. And the stock of Google Inc. fell almost 6 per cent to $295.86 after the Web search leader reported revenue that was not as strong as some had hoped.

The mood on Wall Street was nervous, with news before the regular session opened that four small explosions had hit London's bus and underground train network on Thursday, without causing major casualties. Travel stocks sank, bearing the brunt of investors' anxiety. The London incidents came two weeks after suicide bomb attacks on that city's underground killed more than 50 people.

The blasts are "probably the reason the market netted down because the rest of the news has been pretty positive," said Lincoln Anderson, chief investment officer at LPL Financial Services in Boston. "A concern that's out there is two in a row and people start to connect the dots. Maybe that means we'll have three, four or five. It's certainly not a one-off." The Dow Jones industrial average fell 61.38 points, or 0.57 per cent, to end at 10,627.77. The Standard & Poor's 500 Index shed 8.16 points, or 0.66 per cent, to finish at 1,227.04. The technology-laced Nasdaq Composite Index slipped 9.97 points, or 0.46 per cent, to close at 2,178.60.

Shares of travel companies slid on the London news, with the American Stock Exchange index of airlines down 3.1 per cent, even as oil prices fell.

Delta Air Lines reported a narrower second-quarter loss, but its shares fell 9.2 per cent to $3.55 on the New York Stock Exchange amid renewed talk that the troubled No. 3 US carrier may file for bankruptcy protection.

US crude oil futures for September delivery settled at $57.13 a barrel, down 89 cents for the day on NYMEX.

"We have seen at least a small break in oil prices," Anderson said. "That's been a positive, even if it shows up and knocks down stock prices because it takes down Exxon and components of the energy sector. But if it sticks, it should be positive for stocks overall." Shares of Exxon Mobil Corp., a Dow component, fell 1.9 per cent, or $1.11, to $57.89, while Chevron Corp. slid 1.1 per cent, or 63 cents, to $56.97. Exxon Mobil and Chevron were among the biggest drags on the S&P 500.

MICROSOFT, GOOGLE AND HIGH EXPECTATIONS

Both Microsoft and Google reported better-than-expected profits after the market closed, but they failed to live up to some high hopes on the revenue side.

Microsoft forecast revenue of $9.7 billion to $9.8 billlion for the current fiscal first quarter -- below analysts' expectations for $9.95 billion, according to Reuters Estimates. That prompted a slight after-hours sell-off, pushing Microsoft below its Nasdaq close of $26.44.

"There's a lot of investors in this market who think the company won't be able to sustain this type of performance in the future and that is why we are seeing such a lukewarm response to the results," said Fred Burke, portfolio manager at Johnston Lemon Asset Management in Washington, D.C.

"But we disagree and so does Microsoft," Burke said. "They just stated that they are expecting revenue growth next year." Google's stock gyrated after the bell -- rising to $320 from a Nasdaq close of $313.94 and then falling below $296 -- following its report that quarterly profit more than quadrupled and revenue rose to $1.38 billion on a jump in Web search advertising.

Marianne Wolk, internet analyst at Susquehanna Financial Group, said Google's revenue slightly exceeded some published expectations, "but there was not as much upside as some had hoped." CHINA PLAY

During the regular session, market participants considered the implications of China's statement early Thursday that it would revalue its currency by 2 per cent, linking the yuan to a basket of currencies rather than directly at 8.28 yuan to the dollar as it has for a decade. The move initially values the yuan at 8.11 per dollar and may cool tensions between Washington and Beijing over China's trade policies.

"The cost of some of the goods that we import from China is going to increase a little bit, so short-term, it would be a negative for some of the products," said Todd Clark, head of listed trading at Wells Fargo Securities.

But the yuan revaluation may have "good long-term ramifications, such as better trade opportunities for US companies," said John Augustine, chief investment strategist at Cincinnati-based Fifth Third Asset Management.

A Sanford Bernstein & Co. analyst noted most major US retailers have diversified sourcing networks and could shift production out of China if prices surge.

Still, shares of major US retailers, including Wal-Mart Stores Inc., the world's largest retailer, and No. 1 home improvement retailer Home Depot Inc. fell. Both are Dow components.

Wal-Mart slipped 1.2 per cent, or 61 cents, to $49.39 and Home Depot dropped 1.4 per cent, or 60 cents, to $43.35 on the NYSE.

Chinese companies whose US-traded shares are listed on the Nasdaq advanced as the revaluation promised to increase their purchasing power. Mobile phone services company Hurray Holding Co. Ltd. rose 1.7 per cent, or 17 cents, to $10.18 and new media company Sohu.com gained 3.1 per cent, or 64 cents, to $21.37.

Trading was heavy on the NYSE, with about 1.66 billion shares changing hands, above last year's daily average of 1.46 billion, while on Nasdaq, about 2.11 billion shares traded, higher than last year's daily average of 1.81 billion.

Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on both the NYSE and Nasdaq. (Additional reporting by Lisa Baertlein)

- REUTERS