Stocks Sink Amid Latest Profit Woes

U.S. stocks suffered another sharp decline Thursday as worrisome economic data and a fresh round of corporate profit warnings fueled heavy selling.

European and Asian markets also tumbled hard amid deepening gloom over the prospects for the global economy and for corporate earnings.

The aggressive dumping of shares raised the specter that stock prices, which had rebounded in spring after a yearlong slide, are on the verge of a new free fall.

Many foreign markets have plummeted to fresh bear-market lows in the last month or so, and key U.S. indexes in recent days have fallen perilously close to their two-year lows reached in April.

The blue-chip Standard & Poor’s 500 index Thursday came within three points of breaching its April 4 low, plummeting 25.34 points, or 2.2%, to close at 1,106.40.

The technology-dominated Nasdaq composite index dropped 53.37 points, or 3%, to 1,705.64, also the lowest close since April 4, when the index bottomed at 1,638.80.

“It seems like a pretty desperate market,” said Ben Inker at money-management firm Grantham, Mayo, Van Otterloo & Co. in Boston.

The Dow Jones industrial averaged fared only slightly better Thursday, losing 192.43 points, or 1.9%, to 9,840.84--its worst showing since April 6.

At the heart of the sell-off was the growing belief on Wall Street that the U.S. economy may not recover from its slowdown until sometime next year. And even if it stabilizes before then, many investors fear that corporate profits will remain soft for an extended period.

Recent economic reports, including one this week on the manufacturing sector, had yielded hope the economy was finally bottoming out after a yearlong slowdown.

But a pair of reports on Thursday sent the opposite message.

A survey by a private business group showed activity among non-manufacturing companies--mostly service-sector companies such as brokerages and restaurants--declined in August for the fourth time in five months. That raised concern that the woes afflicting manufacturing are spilling into the much larger services sector.

Also, the government said the number of workers filing new claims for unemployment benefits rose above the psychologically important 400,000 level for a second straight week.

Meanwhile, many major retailers reported disappointing August sales, casting new doubts on the ability of consumer spending to sustain the economy.

“If the consumer finally capitulates, it’s like restarting the [economic] slowdown all over again,” said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

Retail stocks were broadly lower, led by Home Depot, down $2.44 to $43.55, and Sears, off $1.68 to $41.27.

Markets will face another important economic report today, when the government issues August employment data.

Stocks in the deeply depressed technology sector also were hammered anew Thursday after cell-phone maker Motorola warned of weaker-than-expected earnings. Motorola plunged $2.46 to $13.94.

Other tech issues down sharply included Applied Materials, off $1.87 to $40.20; AOL Time Warner, down $1.66 to $35.09; and PeopleSoft, off $3.38 to $27.70.

The warnings from Motorola and other companies this week have reinforced fears that corporate earnings could remain disappointing well into next year. Without a profit recovery on the horizon there is little reason to buy stocks, many analysts say.

“The simple fact is that companies give the best real-time information on what’s happening with the economy,” said Thomas McManus, market strategist at Banc of America Securities in New York. And “they’re still casting a downbeat pall.”

The news wasn’t all dismal, however. National Semiconductor gave an upbeat account of its recent sales, and the stock rose 30 cents to $30.52.

Chip giant Intel said after trading ended that chip prices and demand are falling less than some investors feared. Intel fell $1.37 to $26.10 in regular trading but edged up in after-hours activity.

This week’s ugly stock-market performance is especially disconcerting to Wall Street because the post-Labor Day week often sets the stage for share-price performance throughout the autumn.

Market bulls had expected investors to return from summer vacation in a buying mood. Instead, sellers have dominated all week as trading volume has surged.

Losers outnumbered winners by more than 2 to 1 Thursday on the New York Stock Exchange and by 25 to 11 on Nasdaq.

With major indexes already down sharply this year, the market now is in its seasonally weakest period, historically: The July-through-October period is often the worst of the year for Wall Street.

As stocks slide, more investors are buying bonds. Treasury bond yields fell Thursday as investors rushed to lock in rates. The yield on the 10-year T-note fell to 4.87% from 4.96% Wednesday.

Market Roundup, C6, C7

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Global Selloff

Stocks tumbled worldwide Thursday, deepening year-to-date losses in key markets. A sampling:

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Pctg. change: Country/index Week YTD Japan/Nikkei -0.6% -22.7% U.S./S&P; 500 -2.4% -16.2% Britain/FT-100 -2.6% -16.4% Hong Kong/HS -3.8% -29.4% France/CAC -4.4% -24.4% Germany/DAX -6.0% -24.2% Mexico/IPC -6.9% +4.0%

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Note: Foreign index changes are measured in native currencies.

Source: Bloomberg News