Stocks Fall as Outlook Slumps

Stocks slumped Friday after a consumer sentiment gauge soured in June, and bond yields continued to tumble as traders saw more reason for the Federal Reserve to keep interest rates low.

The blue-chip Dow Jones industrial average fell 79.43 points, or 0.9%, to 9,117.12. The Standard & Poor’s 500 index dropped 9.90 points, or 1%, to 988.61, and the technology-laden Nasdaq composite index was down 27.13 points, or 1.6%, to 1,626.49.

Losers led winners by 9 to 5 on the New York Stock Exchange and Nasdaq in slow trading.

For the week, the Dow gained 0.6%, the S&P; 500 edged up 0.1%, and Nasdaq dipped 0.1%.

Although economists had forecast a gain in the University of Michigan index of consumer sentiment, it fell to 87.2 in June from 92.1 in May. More worrisome was the slump in consumers’ outlook about the economy, suggesting Americans find it hard to sustain the optimism that followed the end of the Iraq war.

Some traders said the stock market action was to be expected after recent advances.

“Markets don’t go straight up,” said Gary Wedbush at Wedbush Morgan in Los Angeles. “There’s always something out there to assign a pullback to, and the main one would be consumer confidence coming in lighter than expected.”

Weighing on Nasdaq, Adobe Systems fell $4.43, or 12%, to $31.55, a day after the software maker forecast that third-quarter results would be down from the second quarter.

Intel slid 78 cents to $21.36 after Deutsche Securities cut its rating to “hold” from “buy,” citing a lack of near-term factors to drive its stock price higher and recent large gains by chip stocks.

Treasury yields fell as investors bet that the Fed not only would cut interest rates again but also keep them near rock bottom for some time. The pressure for a rate cut was evident in the two-year note, whose yield slipped to 1.08% from Thursday’s close of 1.10%, an all-time low and far below the Fed’s overnight rate of 1.25%.

The yield on the benchmark 10-year T-note slid to a generational low of 3.11%, down from Thursday’s close of 3.16%.

Still, fixed-income traders cautioned that the market may be getting ahead of itself.

“The party’s going to stop sometime, and it’s going to be hard to get off,” said Andrew Brenner, head of fixed income at Investec Ernst & Co.

The dollar weakened sharply against the euro and the yen after the consumer sentiment report fanned expectations about Fed rate cuts.

Oil prices fell for a second day after the International Energy Agency made its largest revision ever to oil inventory data, adding 79 million barrels to its estimate of oil stored in the industrialized world in March. In New York trading, crude for July delivery tumbled 86 cents to $30.65 a barrel, extending Thursday’s losses and pulling prices back from recent 12-week highs above $32.

In Tokyo, stocks hit a six-month closing high. The Nikkei-225 index closed up 0.7% at 8,980.64, helped by foreigners betting that the market is undervalued compared with its global peers. The Nikkei is up 18% since the end of April.

Market Roundup, C4-5