US stocks fall on renewed Fed concern

By Kristin Roberts

NEW YORK: Stocks fell on Tuesday as the nation's central bankers renewed investors' worries about interest rates and the economy, giving Wall Street a reason to cash out after nearly a week of gains.

Technology stocks joined interest-rate-sensitive bank and retail names in a late-day pullback following word from San Francisco Federal Reserve President Robert Parry that it is premature for the Fed to declare victory in its war on inflation. "All in all, it was a pretty good day, but I think those comments out of Parry were ill timed," said Charles Payne, head analyst at independent market research firm, Wall Street Strategies. The Dow Jones industrial average ended down 79.73 points, or 0.74 per cent, at 10,735.57, dragged lower by J.P. Morgan & Co., Hewlett-Packard and Home Depot. Weakness nearly across the board offset a strong day for Microsoft, up 2-3/4 at 69-5/8.

Microsoft's gains also failed to buoy the Nasdaq composite, which dropped 65.37 points, or 1.71 per cent, to 3,756.39 as other technology stalwarts sunk. Broader measures of the market rolled back as well to leave the Standard & Poor's 500 index off 9.79 points, or 0.67 per cent, at 1,457.84 while the Wilshire 5000, a gauge of roughly the entire U.S. equity market, fell 104.81 points, or 0.77 per cent, to 13,573.99.

The Fed's Parry said that despite recent signs of slowing in the economy, the central bank could not conclude from one month's or even one quarter's data that the trend would last. Traders said those comments, coupled with a nagging desire to take profits after last week's record gain of 19 per cent in the Nasdaq index, weighed on the market. Still, the retracement was not severe and analysts continued to put credence behind Wall Street's recent strength.

Merger news, profit warnings and disappointing sales growth from an electronics retailer also shaped trading as investors waited for new economic data due Thursday and Friday on jobless claims and producer prices. Shares of the world's leading investment banks suffered as well. J.P. Morgan, along with Bank of America, Morgan Stanley Dean Witter and Goldman Sachs, joined three other financial institutions to form a multi-dealer foreign exchange service.

Those shares all rolled back. Even modestly bullish economic data was not enough to cheer up the financial sector. Revised US productivity data for the first quarter showed workers churned out goods and services at a more efficient rate, keeping labor costs restrained and helping mute inflation pressures.

Earlier, the Labor Department reported non-farm productivity was unchanged from the preliminary 2.4 per cent increase in the first quarter. Non-farm unit labor costs for the first quarter were revised down to a gain of 1.6 per cent from an initially reported gain of 1.8 per cent. Technology stalwarts fell and the Nasdaq 100 index of top, non-financial shares ended down 2.25 per cent at 3,646.32. The composite index is weighted by market capitalization, meaning the biggest, most expensive shares have the greatest effect on the gauge's direction.

Electronics retailers fell, along with the wider retailing group, after Circuit City said sales growth had slowed sharply last month. The stock lost 12-7/8 to 39-1/4 on volume of 13.8 million shares. The S&P retail index fell 3.47 per cent to 872.63. Profit warnings also hit the market, kicking off the pre-announcement season. Electronics for Imaging Inc., a maker of software that connects copiers, printers and digital presses, plunged 10-13/16 to 23-15/16 after saying second-quarter results would fall below targets. Truckload carrier Covenant Transport Inc. fell 7/16 to 8-1/4 and hit a new 52-week low of 7-9/16 on a profit warning.

(C) Reuters Limited 2000.