NEW YORK (REUTERS) — Stocks sagged Monday as a ratings cut on computer-maker International Business Machines Corp. and jitters about far-reaching effects of the United Airlines bankruptcy dampened sentiment further after the Dow snapped its streak of gains last week.
Fears about a possible attack on Iraq also weighed as U.S. officials began poring over Iraq’s 12,000-page weapons declaration. Iraq says it has no weapons of mass destruction, though U.S. officials say they have evidence of nuclear, biological and chemical programs.
“There’s no good news,” said David Memmott, head of listed block trading for Morgan Stanley. “The Iraq thing is no closer to being resolved — there’s more uncertainty and no positive catalyst. Investors are in the ‘prove-it-to-me mode’ in terms of the economy and corporate earnings.”
Stocks had rallied after hitting five-year lows on Oct. 9, but investors now fret the market climbed too far, too fast. The blue-chip Dow Jones industrial average and the benchmark Standard & Poor’s 500 index have fallen for six of the past seven sessions.
A surprisingly weak jobs report for November and a trickle of corporate profit warnings sent market gauges lower last week, snapping an eight-week streak of gains for the Dow average.
“The momentum changed after the Institute for Supply Management’s report last Monday,” said Memmott, referring to the manufacturing index that showed contraction for the third straight month. “Ever since then, the news flow has been negative.”
The Dow Jones industrial average (.DJI) fell 172.36 points, or 1.99 percent, to close at 8,473.41, according to the latest figures. All but four of the Dow’s 30 component stocks closed lower.
The technology-laced Nasdaq Composite Index was down 55.35 points, or 3.89 percent, at 1,367.0, while the broader Standard & Poor’s 500 Index (.SPX) was down 20.23 points, or 2.22 percent, at 892.00.
Trading was moderate with 1.23 billion shares changing hands on the New York Stock Exchange. That’s 3 percent lighter than the average daily trading volume in December last year. About 1.44 billion shares traded on Nasdaq.
Losers trounced winners by a ratio of eight to three on the Big Board and 25 to nine on Nasdaq.
An array of related stocks fell after United Airlines, slammed by high costs and low fares, filed for the largest bankruptcy ever in the global airline industry.
“The foundation of the U.S. economy is shaken by that UAL headline. It’s going to have a ripple effect,” said Steve Kolano, equity trader at Mellon Growth Advisors.
Bank One Corp. lost 65 cents to $37.60 after the No. 6 U.S. bank said it would take a $45 million charge because of United’s bankruptcy. The bank also said it has agreed to extend $600 million in financing to the air carrier.
The bankruptcy of the world’s No. 2 airline also hit shares of Electronic Data Systems Corp. EDS shares fell 57 cents, or more than 3 percent, to $16.32 after the computer services company cut its fourth-quarter earnings forecast by 10 percent, citing the bankruptcy of its leasing partner.
UAL shares, which plummeted last week after the company failed to secure a government loan guarantee it needed to stave off bankruptcy, closed unchanged at 93 cents. The company said it will cut pay for all officers and salaried and management employees as it reduces costs and reorganizes under bankruptcy protection.
Banc of America cut its rating on IBM to “market perform” from “buy,” saying there are a lack of catalysts to drive shares higher. IBM fell $2.78, or 3.4 percent, to $79.54, making it the biggest point decliner in the Dow average.
Qualcomm, the No. 1 maker of chips used in mobile phones, slumped $2.29 to $39.19. Salomon Smith Barney cut its rating on the stock to “in-line” from “outperform,” saying shares are unlikely to rise much more given their 60 percent gain since mid-September.
The downgrades kept investors cautious about jumping into stocks, traders said.
“We keep hearing about these mountains of cash on the sidelines, but they haven’t been flying into the equities market,” said David Briggs, head of equity trading at Federated Investors. “The long-awaited recovery in corporate profits may not be right around the corner.”
Investment companies J.P. Morgan Chase & Co. Inc. and Citigroup Inc. tumbled amid fresh reports of congressional probes into whether they helped bankrupt energy trader Enron Corp. hide debt.
J.P. Morgan dropped $1.17 to $23.26 while Citigroup lost $1.41 to $36.15.
Allegheny Energy Inc. bucked the lower trend, rising $2, or 32 percent, to $8.30. The struggling U.S. power trader and utility is close to signing a deal for around $2.15 billion in debt financing as it tries to avoid default, according to sources familiar with the situation.
