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US stocks: Blue chips drop on US$49 oil, slowing economy

24.09.2004
10.40am
US blue-chip stocks fell on Thursday to nearly a five-week low as crude oil touched US$49 a barrel, close to the record set last month, and a key gauge of future economic activity fell for a third straight month.

Traders viewed a possible oil loan to refiners from US government reserves as too small to make up for supply disruptions caused by Hurricane Ivan.

Exxon Mobil Corp. pulled the Dow down as it fell 2.3 per cent to US$47.76 after Deutsche Bank cut its ratings on the company and the global oil sector. Rival ChevronTexaco Corp. slid 1.5 per cent to US$52.32.

Investors worry about higher energy prices because they can curb consumer spending and corporate profits.

Gains in semiconductor stocks like Broadcom Corp. and Xilinx Inc. helped keep the Nasdaq barely in positive territory. Broadcom rose 2 per cent to US$28.86 and Xilinx climbed 2 per cent to US$29.08.

The Dow Jones industrial average ended down 70.28 points, or 0.70 per cent, at 10,038.90, its lowest close since Aug. 17. The Standard & Poor's 500 Index fell 5.20 points, or 0.47 per cent, at 1,108.36, its lowest finish since Sept. 1. But the technology-heavy Nasdaq Composite Index finished the day up 0.72 of a point, or 0.04 per cent, at 1,886.43.

"At this point, as crude goes, so goes the market," said Dan McMahon, head of listed trading at CIBC World Markets Inc. "When crude spiked up, the market gave back all its gains and then some."

On the New York Mercantile Exchange, November crude settled up 11 cents at US$48.46 a barrel, after rising as high as US$49 -- just 40 cents below the US$49.40 record set on Aug. 20.

Trading was moderate, with 1.3 billion shares changing hands on the New York Stock Exchange and about 1.4 billion traded on Nasdaq -- both below their daily averages last year.

An important gauge of future economic activity -- the US index of leading economic indicators, issued by the Conference Board -- weakened for a third straight month in August.

Before the stock market's opening bell, the Labor Department said the number of applicants for an initial week of jobless aid climbed a sharper-than-expected 14,000 last week to 350,000.

"The semis are helping put a somewhat positive bent on Nasdaq," said David Hegarty, head of equity trading for Commerzbank Securities.

"However ... we did have a disappointing leading indicator number, so we had a negative bias on the day for most of the S&P and the Dow Jones" average.

Investors sold cyclical stocks -- those particularly sensitive to rises and falls in the economy -- such as manufacturer 3M Co. and heavy equipment maker Caterpillar Inc., both Dow components.

3M fell US$1.53 to US$78.70, while Caterpillar fell 86 cents to US$74.50.

Fannie Mae weighed on the Dow, falling 5 per cent, or US$3.54, to US$67.15 after Wachovia Securities downgraded the company to "market perform" from "outperform." On Wednesday US regulators challenged the company's accounting methods.

Drugstore chain Rite Aid Corp. fell 4.8 per cent, or 18 cents, to US$3.58 despite reporting a quarterly profit, after the company repeated its lowered earnings and sales outlook for the fiscal year ending February. Rival CVS Corp. rose 4 per cent, or US$1.72, to US$42.02.

American Airlines parent AMR Corp. slid nearly 8 per cent, or 68 cents, to US$8.06 after several Wall Street analysts cut their forecasts on earnings for the firm and the airline's chief executive said high fuel prices had hurt the world's largest carrier.

Separately, Merrill Lynch said in an analyst's note it has downgraded AirTran, Continental and Delta from "buy" to "neutral" because of problems it sees developing in US East Coast markets. AirTran fell 4 per cent to US$10.48, Continental slipped 4.5 per cent to US$9.07 and Delta fell 3.5 per cent to US$3.57.

Bed Bath & Beyond Inc., the home goods retailer, fell 5 per cent, or US$1.99, to US$37.59 after it said analysts' estimates for the third quarter were "reasonable." This disappointed some investors.

Among stocks that rose, Computer Associates International Inc. climbed 6.3 per cent, or US$1.60, to US$26.90 a day after the company cut a deal with regulators promising to pay US$225 million to shareholders to settle federal accounting fraud charges.

Martha Stewart Living Omnimedia Inc. rose 17 per cent, or US$2.57, to US$17.55 after it said that Mark Burnett, creator of hit reality-TV shows, will develop a new prime-time television series featuring Martha Stewart.

Darden Restaurants Inc. rose 6 per cent, or US$1.33, to US$22.51 a day after it posted a 5 per cent increase in quarterly earnings.

- REUTERS