War Fears Lead Wall St. Retreat as Early Rally Fades
Wall Street rallied early, then fell back Wednesday amid continuing investor mood swings over the prospects for war between the United States and Iraq.
The market advanced initially as Secretary of State Colin L. Powell addressed the United Nations on Iraq’s alleged weapons abuses. The Dow Jones industrial average rose as much as 139 points. But the gains evaporated by the close of trading, and the Dow ended down 28.11 points, or 0.4%, at 7,985.18.
The Nasdaq composite index closed off 4.65 points, or 0.4%, at 1,301.50.
In other trading, the dollar gained sharply against the euro, and gold eased from Tuesday’s six-year high.
Analysts said Powell’s speech seemed to convince some investors that the United States was headed closer to war, a development that would eliminate the uncertainty pressuring the market but also raises questions about the effect of a conflict on the global economy.
“There’s a perception with the case made today that the Iraq question doesn’t carry on another six months,” said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons.
But investors may have been hoping that U.S. allies would respond favorably to Powell’s speech and ensure a united front against Iraq. Stocks turned lower after France, Russia and some other members of the Security Council said Powell’s outline of evidence against Iraq made the case for giving U.N. weapons inspectors more time to do their jobs.
Wall Street seemed to pay little attention to a report from the Institute for Supply Management showing that its services-sector index in January rose to 54.5 from the downwardly revised 54.2 reported for December. The data were another piece of evidence that the economy continues to expand.
Powell’s speech seemed to impress currency traders: The dollar, which has plunged against the euro and other key rivals in recent months, had its biggest gain against the euro in five weeks. The euro ended at $1.08 in New York, down from $1.088 Tuesday.
Wider support for the U.S. against Iraq could spur “a relief rally” in which the dollar rebounds, driving the euro back to perhaps $1.06, Tim Stewart, head of currency strategy at brokerage Morgan Stanley, told Bloomberg News.
In commodities trading, near-term gold futures in New York dropped $2.60 to $376.40 an ounce. Some investors’ rush for safety amid war jitters has fueled a strong rally in gold in recent months. Tuesday’s price was the highest since October 1996.
The gold market’s initial reaction to Powell’s speech was that “there isn’t an immediate smoking gun, that Iraq will get additional time,” Frank McGhee, head trader at gold trader Alliance Financial in Chicago told Bloomberg News.
Among Wednesday’s market highlights:
* Casino stocks continued to slide in the wake of a proposal by New Jersey’s governor to raise Atlantic City gambling taxes. Park Place Entertainment fell 35 cents to $6.83 and Harrah’s dropped $1.45 to $33.75.
* Utilities were lower as natural gas pipeline firm El Paso became the latest energy company to slash its dividend amid financial woes. El Paso sank $1.80 to $6.20, TXU lost 62 cents to $17.94 and American Electric Power was off 47 cents to $22.66.
* Goodyear Tire, which plunged Tuesday after cutting its dividend, lost more ground, falling 63 cents to $3.67. Rival Cooper Tire fell 41 cents to $14.39.
* Insurance giant American International Group continued to fall one day after announcing a surprise jump in its loss reserves. AIG slid 88 cents to $50.82 after tumbling $3.63 on Tuesday.
* Home builders were a bright spot, rallying across the board. KB Home gained $1.39 to $46.22 and Centex jumped $1.36 to $53.99.
* Gold mining stocks fell with the metal’s price. Barrick Gold lost 56 cents to $16.48 and Agnico Eagle sank 73 cents to $14.36.
Market Roundup, C6-7
