ECON - Stocks fall on retail slump, jobs data

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Thursday August 23 4:59 PM ET

Stocks Fall on Retail Slump, Jobs Data

By Chelsea Emery

NEW YORK (Reuters) - Stocks closed slightly lower on Thursday after retailers like Kmart Corp. (NYSE:KM - news) posted poor financial results and helped reignite Wall Street's fears a slowdown in consumer spending will further weaken the economy.

The latest economic data did little to brighten the outlook: The government said first-time jobless claims rose more than expected last week and the number of people who remained on jobless rolls climbed to 3.2 million -- the highest in nine years.

The president of the Federal Reserve Bank of Dallas, Robert McTeer, added fuel to the fire after he said unemployment was likely to rise even further.

``After seven interest-rate cuts and probably the most aggressive Fed in a generation, there's no evidence things are getting better. In fact, there's evidence things are getting worse,'' said Michael Weiner, portfolio manager for Banc One Investment Advisors, which oversees $135 billion. ``There are lots of things to be negative about.''

Retailers fell after Kmart posted a loss, as the discount giant offered big rebates to attract customers in a profit-slicing price war. In addition, clothing retailer Limited Inc. (NYSE:LTD - news) and others said slumping sales were likely to hurt future earnings, exacerbating worries about the outlook for corporate profits amid a sluggish economy.

``The economy is still pretty weak,'' said Peter Coolidge, senior equity trader at brokerage Brean Murray & Co.

The Dow Jones industrial average (^DJI - news) closed down 47.75 points, or 0.46 percent, at 10,229.15, while the broader Standard & Poor's 500 Index (^SPX - news) lost 3.22 points, or 0.28 percent, to 1,162.09.

The technology-laced Nasdaq Composite Index (^IXIC - news) reversed an earlier gain to fall 17.04 points, or 0.92 percent, to 1,842.97.

Trading was lighter than usual -- typical for August when many traders and portfolio managers take vacation. About 985 million shares changed hands on the New York Stock Exchange, and eight stocks fell for every seven that rose. About 1.44 billion shares traded on the Nasdaq, where seven stocks fell for every five that gained.

Stocks were mostly higher until the Fed released minutes from its June meeting, which showed Fed members overwhelmingly voted to lower rates, but some felt the central bank was getting close to the end of the current cycle.

The Fed lowered rates again Tuesday, its seventh cut this year, in an attempt to keep the economy out of recession.

``It's that ongoing fear of slowing,'' said Art Hogan, chief market analyst for Jefferies & Co. in Boston. ``It puts into words what you don't want to hear. Investors are heading back to the sidelines for a bit.''

Also weighing on sentiment, a report from the Federal Reserve Bank of Philadelphia said the outlook for economic growth darkened over the past three months and private-sector economists expect weaker growth and higher unemployment in the months ahead than previously thought.

And jobless claims are rising. The government reported first-time jobless claims rose to 393,000 in the week ended Aug. 18 from a revised 385,000 in the prior week.

Drug giant Merck & Co. (NYSE:MRK - news) dragged on the Dow with a drop of $2.71 to $68.51. Its shares were hit, along with those of Pharmacia Corp. (NYSE:PHA - news) after a report questioned the safety of their popular anti-arthritis medicines, Vioxx and Celebrex. Pharmacia fell 80 cents to $42.40.

Ciena Corp. (Nasdaq:CIEN - news) was the fourth-most heavily traded stock on Nasdaq on news S&P will add the communications equipment maker to the S&P 500 index. Ciena rose 36 cents to $17.80.

Ciena also got help from a report showing sales of gear for building optical networks will produce $10.3 billion in global revenues this year -- a 52 percent rise from last year.

Kmart reported a loss as it faces pressure to lower prices as it works to remodel its U.S. store base and boost customer traffic, and amid a cut-throat price war with other large discount retailers. Kmart fell $1.13 to $10.97.

Specialty apparel retail chain Limited slumped $1.27 to $13.93 after saying its profits were cut in half and that weak sales will hurt third-quarter and full-year profits.

Lingerie retailer Intimate Brands Inc. (NYSE:IBI - news) said its profits fell 30 percent, matching estimates, while dismal sales could hit third-quarter and full year earnings. Intimate Brands dropped $1.22 to $13.39.

Personal computer maker Gateway Inc. (NYSE:GTW - news) fell sharply a day after Standard & Poor's slashed Gateway's credit rating to junk status.

Gateway was down 12 percent, or $1.18, at $8.61 on the NYSE. The No. 2 U.S. direct PC seller is restructuring in the middle of a price war and a broad downturn in the technology industry, especially in sales to consumers, Gateway's main clients.

Some good news from luxury home builder Toll Brothers Inc. (NYSE:TOL - news) helped boost its shares 89 cents to $35.19 after its earnings rose 60 percent as demand for its homes remained strong.

Struggling telecommunications equipment maker Lucent Technologies Inc. (NYSE:LU - news) said it expects to return to profitability and positive cash flow in 2002. Investors were unimpressed, bidding its stock down 3 cents to $6.65.

Lucent dropped 56 percent since its restructuring efforts began in January, underperforming the S&P 500 by 51 percent.

-- Anonymous, August 23, 2001


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