Stocks Retreat as Investors Cash Out

A burst of profit taking sent stocks lower Tuesday as investors cashed in some of their winnings after two weeks of sizable gains. The Dow Jones industrials fell nearly 119 points.

“The market seems a little tired,” said Michael Murphy, head trader at Wachovia Securities. “We’ve had a pretty good mood the last eight days. So some sort of pullback or digestion of the recent gains would be in order.”

Meanwhile, yields on Treasury securities had their biggest one-day drop in three weeks.

The Dow closed down 118.72 points, or 1.3%, at 8,872.07, giving up more than half of Monday’s 213-point advance.

The broader market also was lower. The Nasdaq composite index fell 17.95 points, or 1.3%, to 1,376.59, after a 2.5% rise Monday. The Standard & Poor’s 500 index declined 13.27 points, or 1.4%, to 937.43.

About three stocks fell for every two that rose on Nasdaq and the New York Stock Exchange, but the losses were more lopsided among blue-chip shares. All but three of the 30 Dow members fell, while 402 members of the S&P; 500 fell and only 90 gained. Trading volume was modest, following the pattern of recent sessions.

Investors decided to cash out some gains after the S&P; 500 rose 9% in about one month after a sell-off in the spring and summer that sent stocks to levels not seen since mid-1997.

“The market has moved up 1,500 points in a very short period of time, so we are in for a breathing spell,” said Alan Ackerman, market strategist at Fahnestock & Co., referring to the Dow. “Techs, telecoms and financials are under some profit-taking pressure, but on balance the market continues to show remarkable resilience.”

He said that among factors pressuring the market was the uncertainty over whether the United States was planning to strike Iraq. Oil prices rose to $30.11 a barrel Tuesday, the highest price in 18 months.

The market also was pressured by news that about 70 people were being decontaminated in McAllen, Texas, after they were exposed to an unidentified white powder sent to a Hotels.com office. The powder turned out not to be hazardous, a fire department spokesman said later.

“The market traded down a little on the fear that it could be something like anthrax,” said Brian Pears, head of equity trading at Victory Capital Management. “It’s quiet and we will be subject to rumors and seemingly unimportant stories that still impact the market.” Hotels.com shares fell $1.25 to $44.19.

The incident gave a further downward push to Treasury yields, which already were falling as the stock market’s decline renewed speculation that the Federal Reserve will cut interest rates to revive economic growth.

The yield on the most actively traded two-year note fell to 2.07% from 2.21% Monday, its biggest one-day slide since July 31. The yield on the benchmark 10-year T-note fell to 4.15% from 4.28%.

“A weaker stock market would pressure the consumer to spend less money, forcing the [Fed] to cut interest rates,” said Michael Cheah, investment manager at Sun America Asset Management. “That’s good for Treasuries.”

The dollar rose against the yen and slipped against the euro. Gold futures rose $2.70 to $308.70 an ounce in New York trading.

In other highlights Tuesday:

* Shares of SBC Communications, BellSouth and Verizon Communications fell after UBS Warburg downgraded the stocks and cut their earnings and price targets. SBC, a Dow component, fell $2.19 to $27.68; BellSouth fell $1.21 to $25.50; and Verizon lost $1.79 to $31.80.

* Cisco Systems, the No. 1 maker of equipment that directs Internet traffic, said it will buy Andiamo Systems Inc., in a deal that puts it in direct competition in the storage switch market with Brocade Communications Systems and McData. Brocade shares slipped 44 cents to $15.74 and McData shares lost 21 cents to $10.15, while Cisco shares inched up a penny to $14.73.

* Shares of Agilent Technologies lost $1.24 at $16.20, or 7%. The electronics and testing equipment maker reported a steep quarterly loss Monday.

* Qwest Communications International gained 71 cents to $2.95, or almost 32%, after it agreed to sell its directory publishing business, QwestDex, to two private investment funds for $7.05 billion. The deal would give the troubled telephone company some much-needed cash as it attempts to work through several regulatory and financial concerns.

* Household International shares fell on news that Washington state prosecutors are working with other U.S. states to investigate possible lending abuses by the No. 2 U.S. consumer finance company. Household, which declined to comment, skidded $1 to $36.75.

Market Roundup, C6-7