US stocks: Blue chips drop on worry about GE, retailers

NEW YORK - US blue-chip stocks fell on Friday, halting a rally that pushed the Dow through record highs, after earnings at some General Electric Co. units were below Wall Street's forecasts.

In addition, a government report showed an unexpected drop in retail sales last month and a negative brokerage recommendation prompted investors to sell the shares of Home Depot Inc. and some other retailers.

Shares of GE, a Dow component whose products range from jet engines to commercial loans, fell 1.6 per cent to US$35.65. The conglomerate reported third-quarter profit in line with expectations. But its revenues were higher than expected, raising concerns about weak margins, particularly at its plastics and NBC Universal units.

On Thursday, the Dow closed at a record high and reached a fresh all-time intraday high after consumer companies like McDonald's Corp. and Costco Corp. beat earnings expectations. The intraday record brought the Dow within about 40 points of the 12,000 level.

"After the recent rally, stocks are definitely not cheap," said Martin Yokosawa, a senior portfolio manager at Oberweis Asset Management, in Lisle, Illinois. "Today's data, with a drop in retail sales, can't be ignored and some investors decided to step out of the stock market for a bit."

The Dow Jones industrial average was down 19.61 points, or 0.16 per cent, at 11,928.09. But the Standard & Poor's 500 Index was up 0.74 of a point, or 0.05 per cent, at 1,363.57. And the Nasdaq Composite Index was up 6.69 points, or 0.29 per cent, at 2,352.87.

Shares of Home Depot, another Dow component, fell 3 per cent to US$36.78 after Prudential Equity Group began coverage of the biggest retailers with an "unfavorable" rating and suggested investors reduce the proportion of Home Depot holdings.

Prudential cited high petrol prices, higher interest rates and a deteriorating housing market.

A drop in the shares of Centex Corp., the fourth-largest US home builder, helped push an index of home builder stocks down 3 per cent. Centex shares fell 4 per cent to US$52.90 after the company slashed its earnings outlook late on Thursday.

September retail sales unexpectedly declined on a record drop in petrol sales. However, when the record 9.3 per cent drop in petrol sales was stripped out of the government data, retail sales actually rose 0.6 per cent on strong clothing and department store sales.

In a separate report, the University of Michigan's preliminary reading of its October consumer sentiment index rose to 92.3, exceeding economists' forecasts and the final September reading of 85.4. The data added to pressure on stocks as the news reduced hopes of an interest-rate cut by the Federal Reserve, which meets later this month.

Gains in large-cap tech stocks, such as Apple Computer Inc. and Microsoft Corp., helped keep the Nasdaq in positive territory. Apple rose almost 1 per cent to US$75.90 and Microsoft gained 1.4 per cent to US$28.60.

- REUTERS