u.s. stocks fall on economic slowdown concern

U.S. Stocks Fall on Economic Slowdown Concern; Walgreen Slides

By Allen Wan

Sept. 21 (Bloomberg) -- U.S. stocks fell as reports on manufacturing and leading economic indicators provided more evidence of a slowdown, thwarting the Standard & Poor's 500 Index's attempt to set a five-year high.

Stocks started the day higher on optimism the Federal Reserve will leave interest rates unchanged this year. The market retreated after a report showed manufacturing in Philadelphia unexpectedly contracted and an index of leading indicators fell for a second month.

``The market's going to bounce back and forth between recession fears, slowdown fears and possibly a renewal of vigorous economic activity,'' said Stephen Roach, chief economist at Morgan Stanley in New York.

Walgreen Co. and CVS Corp., the two largest drugstore chains in the U.S., tumbled after Wal-Mart Stores Inc. said it will lower prices on generic drugs.

The S&P 500 was down 5.88, or 0.4 percent, at 1319.30 as of 1:12 p.m. in New York. The benchmark earlier touched 1328.19, a level not seen since February 2001. The Dow Jones Industrial Average lost 73.24, or 0.6 percent, to 11,539.95. The Nasdaq Composite Index added 11.88, or 0.5 percent, to 2241.01.

Stocks were within striking distance of setting new highs before the reversal. The Dow average is about 182 points away from a record following oil's decline to $60 a barrel and the Fed's decision yesterday to leave borrowing costs unchanged for a second month after 17 consecutive increases.

Leading Indicators

While the Fed meeting didn't clarify whether the central bank would refrain from raising rates after pausing yesterday, signs that the economy is slowing more than expected may leave it little choice.

``Investors are growing more concerned about the economy than the Fed,'' Francois Trahan, the New York-based chief investment strategist at Bear, Stearns & Co., wrote in a note released last night. This is ``a problem going forward since the economy is unlikely to improve anytime soon.''

Manufacturing in the Philadelphia area unexpectedly contracted this month for the first time since May 2003. The Philadelphia Fed's general economic index declined to minus 0.4 from August's 18.5, which was the highest in 16 months. Readings below zero signal contraction. The gauge averaged 12.4 last year.

The Conference Board said its index of leading economic indicators fell 0.2 percent in August, reflecting a drop in building permits and waning consumer optimism. The gauge signals the direction of the economy in the next three to six months.

Initial jobless claims increased to 318,000 last week, a Labor Department report showed. Economists surveyed by Bloomberg News forecast 310,000 claims.

Cheaper Drugs?

Seven of the 10 worst performers in the S&P 500 were companies that rely on drug sales.

Walgreen slid $3.07, or 6.1 percent, to $46.88. CVS plunged $3, or 8.5 percent, to $32.43. Rite Aid Corp. tumbled 33 cents, or 6.9 percent, to $4.43.

Wal-Mart, the world's biggest retailer, said prices on almost 300 generic drugs will be lowered to $4 per prescription at 65 stores in the Tampa, Florida, area starting tomorrow. Wal- Mart plans to extend the program to ``as many states as possible'' next year. Its shares fell 41 cents to $48.46.

Other companies that derive profit from distributing drugs declined. Medco slumped $2.24 to $60.65. Cardinal Health Inc., the biggest U.S. drug distributor by market value, slid $2.52 to $66.16. McKesson Corp., the No. 2 drug distributor, dropped $1.08 to $52.88. AmerisourceBergen Corp., the third largest, fell $1.98 to $44.23.

Hewlett-Packard

Losses in Hewlett-Packard Co., the world's No. 2 personal computer maker, weighed on the Dow average.

Hewlett-Packard tumbled $1.81, or 4.9 percent, to $34.97 for the measure's steepest drop. Chief Executive Officer Mark Hurd will hold a press conference tomorrow to discuss an investigation into boardroom leaks at the company that may have involved potentially illegal methods of information gathering.

Separately, Hurd approved a sting operation on a reporter in February to find out who was leaking information to the media, the Washington Post reported, citing e-mails from Chairman Patricia Dunn. Hewlett-Packard declined to comment, said company spokesman Ryan Donovan.

More than two stocks fell for every one that rose on the New York Stock Exchange. Some 951 million shares changed hands on the Big Board, 23 percent more than the same time a week ago.

Energy Shares

Gains in energy shares kept the S&P 500 from sliding further. An S&P 500 measure of oil companies climbed 1.2 percent as crude rose for November delivery increased 0.8 percent to $61.22 in New York.

Speculation that the U.S. will renew a push for United Nations sanctions on Iran if negotiations to curb the country's nuclear program don't begin in two weeks fueled the advance.

Exxon Mobil Corp., the world's biggest oil company, rose 59 cents to $64.70. Chevron Corp. added 85 cents to $61.73. Even with today's advance, energy shares are down 6 percent this quarter for the worst performance among 10 industry groups in the benchmark index.

Carnival Corp. rallied $1.60 to $45.18. The world's largest cruise operator said third-quarter profit increased 4.3 percent, beating analysts' estimates, on increased demand for trips to Alaska and Europe.

Smaller rival Royal Caribbean Cruises Ltd. added $1.23 to $38.38.

General Mills Inc., the No. 2 U.S. cereal maker, jumped $1.81 to $54.83. The company reported profit rose to 74 cents a share, beating the 67-cent average analyst estimate in a Thomson survey.

Nike Inc. will probably say after the market's close that profit fell 14 percent to $372.7 million last quarter, based on a Thomson survey. The stock rose 78 cents to $83.38.

InfoSpace

InfoSpace Inc. plummeted $4.63, or 20 percent, to $17.98 after the seller of content for mobile phones lost a wireless carrier as a customer for ringtones and said sales will be hurt. The company said it will devise a cost-cutting plan within 30 days.

Agere Systems Inc., whose microchips are used in wireless devices, slumped 75 cents to $15.92 after CIBC World Markets Inc. lowered its rating to ``sector performer'' from ``outperformer.''

Novell Inc. dropped 5 cents to $6.33 after the maker of computer-networking software said it received a delisting warning from Nasdaq and a default notice from Wells Fargo Bank, both related to delayed financial reports because of an options probe.

To contact the reporter on this story: Allen Wan in New York at [email protected] .

Last Updated: September 21, 2006 13:15 EDT