US stocks: Stocks slip as economic and attack fears weigh

10.30am

Stocks slumped on Monday as jitters about possible new attacks on the United States and a drop in a key gauge of economic activity sent investors scampering out of a market that last week racked up its biggest gain of the year.

Stocks started off on a bad note after US Vice President Dick Cheney said on Sunday an attack on the nation is "almost certain" amid signs al Qaeda may be planning another strike. A bigger-than-expected decline in the US index of leading economic indicators added to worries by hinting at a tepid economic recovery.

"Clearly, Cheney's comments are scaring investors, especially coming off of an 8 per cent up week for Nasdaq," said Seth Tobias, a trader and fund manager Circle T Partners. "Americans are not yet comfortable with the prospect of homeland terrorism -- it creates uncertainty and compresses multiples in the stock market."

The Dow Jones industrial average was down 123.58 points, or 1.19 per cent, at 10,229.50, according to the latest figures. The broader Standard & Poor's 500 Index was down 14.71 points, or 1.33 per cent, at 1,091.88. The technology-laced Nasdaq Composite Index was down 39.80 points, or 2.29 per cent, at 1,701.59.

The Dow climbed 4.2 per cent last week, giving the blue-chip gauge its best week since September. The Nasdaq had surged 8.8 per cent, scoring a five-day winning streak.

Losers trounced winners by a ratio of 5 to 3 on the New York Stock Exchange and almost 2 to 1 on Nasdaq. Volume was light, with about 993 million shares changing hands on the Big Board and about 1.4 billion shares traded on the Nasdaq.

Gold and energy stocks benefited from worries about the prospect of more attacks, as investors jumped into so-called safe havens. Barrick Gold advanced 54 cents, or 2.5 per cent, to US$22.51, while Newmont Mining rose 70 cents, or 2.4 per cent, to US$30.14.

The American Stock Exchange Gold Bugs index jumped more than 10 per cent, to a high unseen since October 1997.

Utilities were the best-performing sector as Duke Energy advanced 83 cents to US$34.35 and energy trader Dynegy Inc. gained US$1.60, or 23 per cent, to US$8.60.

US Treasuries gained as stock market declines, weak economic data and fears of new terrorism threats spurred demand for ultra-safe government securities.

Shares of home improvement retailers gained. Lowe's Cos. jumped US$2.04, or 4.6 per cent, to US$46.80 after the No. 2 US home improvement retailer posted a 54 per cent jump in quarterly earnings on a sharper-than-expected rise in sales. The company also raised its earnings expectations.

Home Depot Inc., the world's largest home improvement retailer and a Dow component, added 50 cents to US$48.59.

News was mixed for small drug makers.

ImClone Systems Inc. sank US$2.29, or 17 per cent, to US$11.12 after investigators said the company's experimental colon cancer drug Erbitux failed a clinical trial.

But Telik Inc. jumped 10 per cent, or US$1.14 to US$12.36, after the biotechnology firm reported promising results from a clinical study of its experimental cancer drug TLK286. The study involved patients with hard-to-treat forms of ovarian and lung cancer.

Joel Sendek, an analyst with Lazard Freres, said the Phase II clinical study data in these patients was "better than expected."

PeopleSoft Inc., one of the few software makers to enjoy year-over-year earnings growth during the technology sector's downturn, fell US$1.85, or 7.8 per cent, to US$21.84 after saying it still sees no discernible pick-up in customer spending.

Other software stocks followed, including business software maker Oracle Corp., which lost 45 cents to US$9.11. Microsoft Corp. slumped US$2.02 to US$54.01, pressuring the Dow. The company is expected to announce a billion-dollar investment in its new online game service, "Xbox Live," The New York Times reported.

WorldCom Group rose 13.8 cents, or 10 per cent, to US$1.49 and was the most active stock on Nasdaq. The struggling telecom company secured a revised US$1.5 billion financing agreement that will provide it with additional liquidity while it negotiates a larger credit pact, according to The Financial Times newspaper.

The latest economic data painted a dim picture. The Conference Board's index of leading economic indicators fell 0.4 per cent in April -- the first decline since a 0.6 per cent drop in September 2001 -- after rising 0.1 per cent in March.

"The signal from the indicators is that the recovery is developing quite slowly," Ken Goldstein, the Conference Board's chief economist, said in a statement.

"The biggest concern is the economy," said Marc Klee, co-manager of the US$700 million John Hancock Technology Fund.

But in the short term, Wall Street cited fears of another terror attack as a reason to take profits after last week's gains. A new attack on the United States is "almost certain" as US intelligence officials picked up signals a fresh al Qaeda strike could be in the works, Cheney said.

The FBI also warned of a possible plot by the al Qaeda network to detonate bombs in US apartment buildings.

Investors are worried more assaults, following the Sept. 11 attacks on the World Trade Center and the Pentagon, could hurt consumer sentiment and the economy. The United States blames the Sept. 11 attacks on al Qaeda.

"When people are told the likelihood of another terrorist attack is higher, it makes them nervous," said Klee. In addition, "we've had mixed economic results. Things are getting marginally better and I see markets heading a bit higher, but over the short run, mixed crosscurrents" will keep stocks pinned, he said.

Resistance -- the point where sellers are likely to emerge -- is at 1,785 for the Nasdaq, 10,450 for the Dow and 1,120 for the S&P, according to research firm Schaeffersresearch.com. Support -- where buyers are expected to swoop in -- is at 1,700 for the Nasdaq, 10,200 for the Dow and 1,093 for the S&P. The levels are key elements of technical analysis, which studies prices, volume and charts.