US stocks: Shares drop as Dell hits techs

NEW YORK - US stocks fell on Friday, led by a drop in technology shares, after a profit warning from personal computer maker Dell Inc.

As a volatile week in stocks drew to a close, investors also worried about news that Israel intends to step up pinpoint raids into South Lebanon. Slowing economic growth also was a concern, but the negative tone gave investors a reason to buy defensive-play stocks such as health-care companies.

Dell shares fell to their lowest in nearly five years after the company warned of a shortfall in second-quarter earnings and revenue. Shares of Dell tumbled nearly 10 per cent to US$19.91 on Nasdaq, while shares of rival Hewlett-Packard Co. shed 4 per cent to US$30.52 on the New York Stock Exchange.

"When a bellwether such as Dell warns about lower earnings, it pulls down stocks in the entire sector," said Noman Ali, a portfolio manager at MFC Global Investment Management in Toronto. "There have been concerns about the health of the tech companies and the tech sector."

The Dow Jones industrial average dropped 59.72 points, or 0.55 per cent, to end at 10,868.38. The Standard & Poor's 500 Index slid 8.84 points, or 0.71 per cent, to finish at 1,240.29, resulting in a decline of 0.6 per cent for the year. The Nasdaq Composite Index sank 19.03 points, or 0.93 per cent, to close at 2,020.39.

The Nasdaq fell for a third week, dropping 0.8 per cent.

But the other two major US stock indexes finished the week higher, with the Dow gaining 1.2 per cent and the S&P 500 advancing 0.3 per cent.

Rally in the rear-view mirror

Congressional testimony from Federal Reserve Chairman Ben Bernanke suggesting a possible pause in interest-rate increases fueled a rally on Wednesday.

But stocks have been on the defensive since then after disappointing earnings and outlooks from technology companies such as Intel Corp. and internet media company Yahoo Inc.

Microsoft Corp., the world's largest software maker, raised its full-year outlook on strong demand for Windows and said it planned a US$40 billion share buyback.

Shares of Microsoft gained 4.5 per cent, or US$1.02, to US$23.87 on Nasdaq. The stock was the biggest advancer in the Dow and the S&P 500, as well on the Nasdaq.

Defensive strategy in vogue

Defensive-stock plays included diversified health-care group Johnson & Johnson , whose stock rose 0.6 per cent, or 36 cents, to US$61.73 on the NYSE. J&J's stock was the Dow's fourth-biggest gainer.

"Investors may start to favor some of the bigger company names in the more defensive sectors," said Edgar Peters, chief investment officer at PanAgora Asset Management in Boston.

J&J's climb contrasted with a drop in the shares of US jet maker and defence contractor Boeing Co. and of Honeywell International Inc., whose products range from cockpit electronics to thermostats.

Both companies are in sectors heavily influenced by economic cycles. Boeing shares slid 2 per cent, or US$1.61, to US$79.08, while Honeywell fell 1.1 per cent, or 41 cents, to US$36.21. UBS and Credit Suisse cut their price targets on Honeywell shares.

Trading was heavy on the New York Stock Exchange, with about 1.92 billion shares changing hands, above last year's daily average of 1.61 billion. On Nasdaq, about 2.41 billion shares were traded, above last year's daily average of 1.80 billion.

On the NYSE, decliners outnumbered advancers by a ratio of about 2 to 1. On Nasdaq, about three shares fell for every stock that rose.

- REUTERS