US stocks: Shares sink to 2005 lows in IBM-led sell-off

NEW YORK - US stocks finished at 5 1/2-month lows on Friday - in the third straight day of steep declines - as disappointing results from IBM increased investor concerns about an economic slowdown and made Wall Street skittish about the coming flood of earnings.

The blue-chip Dow average had its biggest one-day drop since May 2003, falling 191 points. Friday marked the third consecutive day of triple-digit declines for the Dow, which has fallen more than 400 points in three sessions.

Stocks have now erased the gains built up in a rally that started around November's presidential election. For the year to date, the Dow and the S&P 500 are both down around 6 per cent, while the Nasdaq has fallen 12 per cent.

"What we're looking at is a giving up of hope on the part of investors," said Joseph Keating, chief investment officer of the asset management group at AmSouth Bank.

International Business Machines Corp., the world's largest computer company, tumbled 8 per cent, or US$6.94 to US$76.70, a day after reporting lower-than-expected earnings. That sparked another sell-off on Wall Street and sent shudders through stock markets worldwide.

The Dow Jones industrial average was down 191.24 points, or 1.86 per cent, to end at 10,087.51. The Standard & Poor's 500 Index was down 19.43 points, or 1.67 per cent, to close at 1,142.62. The Nasdaq Composite Index was down 38.56 points, or 1.98 per cent, to finish at 1,908.15.

The Dow and the S&P 500 closed at their lowest since early November 2004, while the Nasdaq ended at its lowest since October 2004.

For the week, the Dow was down 3.57 per cent, the S&P 500 was off 3.27 per cent and the Nasdaq was down 4.56 per cent

. The Dow suffered its worst weekly decline since March 2003, while the S&P and Nasdaq had their biggest drops since August 2004.

The next level investors were focusing on for the Dow to reach is 10,000, said Warren West, principal at Greentree Brokerage Services.

"We've broken through anything technicians might have said were support points and now we're looking at sentiment levels such as round numbers," West added. "We're looking at the Dow at 10,000 as the next real test of investor psychology. "

Economic reports contributed to the negative mood, when industrial production and University of Michigan consumer sentiment reports came in on the weak side on Friday.

"Clearly the economy is downshifting because of the persistently high level of oil prices over the last year and the raising of short-term interest rates," Keating said.

"That's really the issue. There needs to be recognition on the part of the Federal Reserve that they will pause before the year end (in raising rates) and not force the economy into a recession. "

The benchmark 10-year US Treasury note's yield slid to a seven-week low of 4.23 per cent as more bad news on the economy bolstered hopes the Fed might take a break from raising interest rates.

The IBM news outweighed a rise from conglomerate General Electric Co., which reported higher first-quarter profit. GE shares rose 25 cents to US$35.75.

Technology stocks suffered sharp declines.

"IBM is leading technology and the Dow down," said David Memmott, head of listed block trading at Morgan Stanley. "IBM touches just about every piece of tech there is. "

Among tech shares falling, network computer maker Sun Microsystems Inc. fell 7.6 per cent, or 30 cents to US$3.66 after it missed expectations. Hewlett-Packard shed 4 per cent, or 91 cents to US$20.84 and PC maker Gateway dropped 3 per cent, or 13 cents to US$3.81.

Energy companies' shares also traded sharply lower. Exxon Mobil Corp. slid 4 per cent, or US$2.56 to US$56.19, while ConocoPhillips fell more than 4 per cent, or US$4.80 to US$100.07.

That came as oil prices slid further from their recent peak of US$58.28. NYMEX May crude dropped 64 cents to settle at US$50.49 a barrel. The market has typically rallied on declines in oil prices, but has failed to respond in recent days.

"Crude has come down significantly in the last week and it's done nothing for stocks," said John Hughes, managing director at Epiphany Equity Research. "It's almost as if lower crude is indicating softening or slowing economic growth -- it's seen as a bad thing now. "

Friday also marked April options expiration, where individual equity options and some index options stop trading at Friday's close. Typically, options expiration is an orderly event but some volatility can occur as players unwind their positions against other stock and index products at the last minute. Greentree Brokerage's West said the expiration contributed to the market's weakness.

Trading was heavy, with 2.18 billion shares changing hands on the New York Stock Exchange, far above the 1.46 billion daily average for last year. About 2.38 billion shares were traded on Nasdaq, well above the 1.81 billion daily average last year. Decliners outnumbered advancers on the New York Stock Exchange and the Nasdaq by about 3 to 1.

- REUTERS