4:21 PM ET Jan 12, 2006
NEW YORK (MarketWatch) -- U.S. stock prices closed sharply lower Thursday,
posting their first significant decline of the year so far, amid tension about
the resumption of Iran's nuclear research program.
There was further pressure in downgrades for Coca-Cola Co. and J.P. Morgan
Chase, and uncertainty about the outlook for earnings following a
disappointing report from Alcoa earlier this week and a profit warning from
DuPont.
The Dow industrials closed down 81 points, or 0.7%, at 10,962.36. The S&P
500 was 8.12 points lower at 1,286.06 and the Nasdaq Composite down 14.67
points, or 0.6%, at 2,316.69.
After a weak morning, stocks extended their losses late in the session as
investors monitored the latest developments surrounding Iran's decision to
resume nuclear research.
European Union member nations said talks with Iran are at a dead end and
called for the United Nations to take action, according to media reports.
U.S. Secretary of State Condoleezza Rice also urged the U.N. to confront
Iran's "defiance" and demand a halt to the nuclear program.
"The market is very nervous about calls for sanctions against Iran," said
Peter Cardillo, chief market strategist at S.W. Bach. "The fear is about how
Iran might retaliate if there are sanctions. Basically, a lot of speculative
money is going into energy now."
Jim Awad of Awad Asset Management said rising energy prices are also
creating a new test for the Dow in holding above the 11,000 level.
Todd Leone, head of listed trading at SG Cowen, noted that Thursday's
losses followed an early 2006 bull run that saw all the major averages strike
4-1/2-year highs, with especially sharp gains in technology.
Earlier, the market showed little response to news of a narrower U.S.
trade gap, and an unexpected drop in prices of imported goods linked to lower
petroleum prices.
The Commerce Department reported that the U.S. trade deficit narrowed 5.8%
to $64.2 billion in November. The consensus forecast of Wall Street economists
was for a deficit of $66.2 billion in November. See Economic Calendar.
The Labor Department said that in December prices of imported goods
dropped 0.2%, marking the second monthly decline and below expectations of a
rise of 0.1%.
Crude futures topped $65 a barrel, before flattening as traders weighed
tensions in key producing regions.
Gold futures backed away from their recent peaks, but were still near 25-
year highs. Demand for gold has been sparked by inflation fears and heavy
consumption in Asia. The front-month contract closed down 80 cents at $549.30
an ounce.
The dollar was lifted by the narrower trade figures and new remarks by
European Central Bank President Jean-Claude Trichet that were not seen as
signaling aggressive rate hikes.
The dollar rose 0.05% to 114.24 yen as the euro dropped 0.2% to $1.2030.
Earlier the Bank of England held its key rate steady at 4.5% and the
European Central Bank held onto a 2.25% rate.
There is some speculation that the ECB may be at just the beginning of its
rate tightening cycle, even as the Federal Reserve appears to be nearing the
end of its rates increases. However, ECB President Jean-Claude Trichet said
the most recent decision was unanimous.
Treasurys drew safe-haven interest from the unfolding events in Iran and
also were supported by positive foreign response to a new auction of Treasury
Inflation Protected Securities. The benchmark 10-year Treasury closed up 11/32
at 100 22/32 with a yield of 4.41%.
Stocks on the march
The biggest gainer on the Dow was Caterpillar , which rose 1.4% to $62.21.
Credit Suisse First Boston said the company's fourth-quarter earnings should
exceed expectations, due to strong European sales.
Shares of fellow Dow component Coca-Cola Co. ended down 0.6% after
Goldman Sachs reduced its rating on the soft drink maker to in-line from
outperform, urging investors not to put fresh money into the stock.
Goldman also cut Anheuser-Busch to underperform from in-line, citing
similar concerns. That stock dipped 1.6% to $42.41.
J.P. Morgan Chase fell 1.8% to $39.95. The bank was cut to market perform
at Piper Jaffray, which thinks that synergy benefits from the Bank One merger
are fully priced into the stock.
Apple Computer Inc. ended up 0.5% after Bear Stearns upgraded it to
outperform from peer perform, citing strong revenue and earnings growth rates.
Google gave up early gains to trade down 1.7% to $463.63. The stock was
initiated with a buy rating by Oppenheimer, while CIBC increased its target
for the share to $540 from $400.
According to news reports, Research In Motion's BlackBerry devices will
support Google's instant-messaging programs. Research In Motion lost 1.8% to
$69.90.
Leslie Wines is a reporter for MarketWatch in New York.
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