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Cisco Outlook Drags on Stocks

Major indexes close modestly lower as investors play it safe. The battered dollar rebounds against euro but loses ground to yen.

May 08, 2003|From Times Staff and Wire Reports

Stocks closed modestly lower Wednesday as Treasury bond yields continued to slide. The dollar rallied against the euro but lost ground against the yen.

The stock market tried to get some traction early on, but a midday rally faded in the afternoon. Some analysts blamed Cisco Systems' uninspiring revenue outlook issued late Tuesday.

"It's part Cisco, and it is partially a profit-taking pit stop," said Alan Ackerman, executive vice president of Fahnestock & Co. "We have a market that's moved up on heavy volume that has indicated to people that we are seeing more of a commitment of funds to the market."

The Dow Jones industrials lost 27.73 points, or 0.3%, to 8,560.63, while the Standard & Poor's 500 dipped 4.77 points, or 0.5%, to 929.62.

The technology-heavy Nasdaq composite index, which has led the market's recent advance, suffered a larger decline, falling 16.95 points, or 1.1%, to 1,506.76. It's still up 12.8% since the start of the year.

Cisco, a key stock on Nasdaq, lost 42 cents, or 2.6%, to $15.48 after its Tuesday report that quarterly earnings rose 35% but that revenue in the current quarter is expected to be flat.

Investors have pushed stocks sharply higher since mid-March, betting on a stronger economy in the second half of the year.

But "when you get a couple of key companies -- particularly Cisco -- not giving a very positive view, that's enough to really pull investors back," Patty Van Kampen, chief equity officer at Mason Street Advisors, told Bloomberg News. "There's still a lot of nervousness."

Some investors also may be trying to decide whether the Federal Reserve's statement Tuesday about the risks of deflation suggest the central bank is more worried about the economy than had been thought.

Long-term Treasury bond yields dropped Wednesday as some investors rushed to buy the securities, apparently betting that the central bank could ease credit further. The 10-year T-note slid to 3.68% from 3.78% on Tuesday.

Normally, falling interest rates are good for stocks. But that might not be the case if investors believe rates are dropping because the economy is headed for more trouble, analysts warn.

Still, falling stocks outnumbered winners Wednesday by a narrow ratio of 17 to 15 on the New York Stock Exchange and by 18 to 14 on Nasdaq.

"The market is really kind of hanging in there," said Stephen Carl, principal and head of equity trading at Williams Capital Group.

Despite the decline in bond yields, the battered dollar rebounded against the euro and other rivals. The euro ended at $1.137 in New York, down from a four-year high of $1.142 on Tuesday.

Traders sold the euro after a report showed that German unemployment surged in April. The news raised the possibility that the European Central Bank could cut interest rates in the next few months.

Higher European rates, compared with U.S. rates, had been one of the factors supporting the euro's rally in recent weeks.

The dollar still lost ground against the yen, falling to a 10-month low of 116.36 from 117.67 on Tuesday.

Among Wednesday's market highlights:

* Tech shares pulling back with Cisco included IBM, down 67 cents to $86.68; Broadcom, down 66 cents to $18.34; and Yahoo, down 39 cents to $24.76.

* Coca-Cola jumped $2.25 to $43.27 after brokerage Morgan Stanley upgraded the company to "overweight" from "equal-weight," citing improvements in the firm's bottling system.

* Kmart tumbled $1.45 to $13.55 as its new shares began trading in the over-the-counter Bulletin Board market. The company this week emerged from bankruptcy protection. Its original shares were declared worthless.

* Whole Foods Market slipped $1.17 to $60.60 in regular trading, then dropped to $52.39 in after-hours trading. The company reported quarterly earnings in line with expectations but said sales growth would slow.

* Fleetwood Enterprises continued to climb, rising 27 cents to $6.67. The manufactured-home maker last week said it couldn't account for a sharp jump in its stock in heavy trading.

Market Roundup, C6-7

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