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Stocks rise as service sector data top forecast

February 05, 2009|Associated Press

Wall Street is now worrying about the companies usually seen as safe havens.

After an early rally Wednesday, investors succumbed to concerns about earnings, and the market ended the day with a loss. Falling consumer stocks weighed most heavily on the Dow Jones industrial average, which slid 121 points. The tech-focused Nasdaq composite index, however, showed only a moderate retreat.

Quarterly numbers from Kraft Foods, Walt Disney and Time Warner provided the latest reminder of the economy's struggles. The weaker-than-expected reports and an earnings warning from Costco Wholesale left investors fearing that consumers were cutting back even more than most analysts had thought.

"Consumer staples have enjoyed relative safety in this environment, and now these new revelations are raising questions among investors," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago.

Falling orders at Cisco Systems were adding to investors' anxiety. The world's largest maker of computer networking gear said after the end of trading that orders showed a sharp drop in January.

Investors have been pumping money into tech stocks since the start of the year in the belief that those companies would be less likely to see demand fall as businesses looked to cut costs with equipment upgrades. Nasdaq 100 futures were down more than 1% after Cisco's report.

The market had rallied early Wednesday after a better-than-expected reading on the service sector.

The Institute for Supply Management said the sector shrank in January at a slower pace than in December. Still, it was the fourth straight month that business activity in services contracted.

"There's so much uncertainty right now that investors are looking for any clues that the economy may be starting to stabilize and turn around," said Michael Sheldon, chief market strategist at RDM Financial Group.

Wall Street was also hoping that lawmakers in Washington would soon show further progress on a plan to help revive the economy by boosting spending and lowering taxes.

"Overall, we seem to be having a tug of war between very weak economic data and the prospect of a pickup in growth later this year, helped by the upcoming stimulus package and potential help for the housing and financial services industries," Sheldon said.

The Dow fell 121.70 points, or 1.51%, to 7,956.66. Broader indicators also fell. The Standard & Poor's 500 index fell 6.28, or 0.75%, to 832.23, and the Nasdaq composite index fell 1.25, or 0.08%, to 1,515.05.

The Russell 2,000 index of smaller companies fell 4.42, or 0.98%, to 448.48.

Bond yields were mixed. The benchmark 10-year Treasury note rose to 2.94% late Wednesday from 2.84% on Tuesday. The three-month T-bill fell to 0.28% from 0.32%.

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