Smaller-Company Shares Slide, but Gold Hits a High

Stocks tripped again Wednesday, but this time smaller shares bore the brunt of the selling--raising questions about the potential for a deeper sell-off in that recently hot sector.

In other trading, Treasury bond yields slid on the heels of strong demand at the government’s sale of new two-year notes. Gold rose further, hitting a 4 1/2-year high. The dollar’s slump continued.

On Wall Street, the Dow industrials gyrated in a narrow range for most of the session and closed down 58.54 points, or 0.6%, at 9,923.04. It was the blue-chip index’s third straight loss.

The technology-dominated Nasdaq composite also fell for a third session, losing 27.78 points, or 1.7%, to 1,624.39, hurt by a sharp slide in shares of Cisco Systems and another drop in semiconductor shares.

More disconcerting to some analysts was the 0.9% decline in the Standard & Poor’s index of 600 smaller stocks.

That index has fallen in six of the last seven sessions, and at 243.86 on Wednesday was the lowest since late March.

Another small-stock index, the Russell 2,000, fell 1% on Wednesday and also has dropped in six of the last seven sessions.

Smaller stocks, especially of non-tech companies, had been a bright spot in the market this year, as many investors hunted for new ideas amid accounting scandals at bigger firms and the continuing bear market in tech shares.

The S&P; 600 index still is up 5% year-to-date, compared with a 7% drop in the blue-chip S&P; 500.

Analysts said the selling in smaller stocks could just be a mild bout of profit-taking. But they said it bears watching because a sharper decline could suggest that investors are losing faith even in market sectors that have generated profits this year.

The market overall struggled Wednesday after another major company--oilfield services firm Halliburton--disclosed that the Securities and Exchange Commission is investigating its accounting. Halliburton shares dropped as low as $17.90, then rebounded slightly to end the trading session at $18.72, down 63 cents.

In the tech sector, semiconductor-equipment maker Novellus Systems dropped $3.27 to $43.40 after the company raised its second-quarter orders forecast but failed to indicate whether the improvement would carry over to the third quarter. The SOX chip-stock index stumbled 3.3%.

Also, Cisco slid 73 cents to $15.65. An analyst at brokerage Dresdner Kleinwort Wasserstein downgraded the stock to “sell” from “hold,” citing worries about the computer networker’s profit margins and stock option compensation.

Losers topped winners by 21 to 13 on Nasdaq and by 9 to 7 on the New York Stock Exchange.

“There’s nothing to get investors excited on a sustained basis about putting their money into stocks,” said Charles G. Crane, strategist at Victory SBSF Capital Management.

The weakening dollar continued to be a negative for stocks, discouraging foreign investors from buying U.S. shares. The euro rose to a 14-month high against the dollar, reaching 93.7 cents, up from 92.9 cents Tuesday.

Global investors’ conclusion increasingly is that “there are better places in the world to park your money” than in the U.S., Dori Levanoni, head of currency research at First Quadrant in Pasadena, told Bloomberg News.

That sentiment also is helping to fuel gold’s rally, analysts said. Near-term gold futures in New York rose $1.40 to $325.50 an ounce. The metal traded as high as $327.30 on Wednesday.

“We’re seeing another wave of fund buying” of gold, Peter Merritt, head of precious-metals trading at HSBC Holdings in New York, told Bloomberg News.

Increased tensions between India and Pakistan, both nuclear powers, and the unresolved conflict between Israel and the Palestinians also have boosted the metal’s appeal as a safe haven.

Despite the dollar’s weakness, the Treasury bond market rallied. The yield on the 10-year T-note dipped to 5.06% from 5.13% on Tuesday and is at its lowest level since May 7.

The Treasury market was buoyed after the government received more bids than expected for a record $27-billion sale of two-year notes. The yield was 3.27%.

Market Roundup, C6-7