Renewed Terrorism Fears Weigh on Wall Street, European Stocks

Stocks slumped Monday in Europe and on Wall Street amid more signs that Al Qaeda was involved in the Madrid train bombings last week.

Major U.S. market indexes posted their fifth loss in six sessions and fell deeper into the red for the year. Travel-related stocks again led the decline, in a sell-off that was worsened by Delta Air Lines’ warning that higher fuel costs would mean a larger-than-expected first-quarter loss.

The Dow Jones industrial average slid 137.19 points, or 1.3%, to 10,102.89, wiping out Friday’s rebound. The blue-chip index now has fallen 634 points, or 5.9%, after reaching a 32-month high of 10,737.70 on Feb. 11.

The Nasdaq composite index, dominated by technology stocks, tumbled 45.53 points, or 2.3%, to 1,939.20. It is down just shy of 10% from its recent high reached Jan. 26.

Losers swamped winners by about 3 to 1 on the New York Stock Exchange and by 4 to 1 on Nasdaq, in active trading.

Most analysts said the catalyst for the selling was concern that the Madrid bombings could herald a new wave of assaults by Al Qaeda, which is blamed for the Sept. 11, 2001, attacks in the United States.

“We’ve moved terrorism and geopolitical fears back to the forefront, after they’ve been in the background for quite a while,” said Art Hogan, chief market analyst at brokerage Jefferies & Co. in Boston.

What’s more, the Madrid attacks occurred when many stock markets worldwide already were in a weakened state, as profit takers had begun to chip away after the powerful surge in prices over the last year.

The Dow and other U.S. indexes had fallen for three straight sessions before the Madrid bombings Thursday. Many stocks had crested in the last seven weeks, analysts noted.

Even with the losses so far, the Dow still is up 34% from mid-March 2003. The Nasdaq index is up 53% in the same period.

“People have had some dramatic gains,” said Peter Dunay, chief market strategist at brokerage Wall Street Access in New York. A pullback would have been expected even if the Madrid bombings hadn’t occurred, he said.

The question now is whether the selling could become much more severe in the short term.

If Al Qaeda was behind the bombings, it could signal that the group remains well-organized and capable of more attacks of that intensity or worse, analysts said.

That threat plays to peoples’ deepest fears and could make more investors reluctant to take a chance on stocks.

“The idea of such a major event is something you just can’t plan for,” Dunay said. In that environment, it’s easier for some investors to simply shy away from risk-taking, he said.

Al Qaeda has claimed responsibility for the bombings in a tape purported to be from the group. U.S. Homeland Security Undersecretary Asa Hutchinson said Monday that he was “satisfied there are connections to Al Qaeda,” although other officials were less certain.

The defeat of the conservative Spanish government in Sunday’s elections also may have weighed on U.S. stocks, analysts said. Spain had been a key ally of the U.S. in the Iraq war, so voters’ shift to the Socialist party was viewed as a blow to President Bush.

The election also raised questions about what’s next for the Spanish economy, which has been among Europe’s strongest. Spain’s key market index dived 4.2% on Monday after losing 3.8% last week.

Germany’s main index fell 2.7% on Monday, while stocks slid 2.4% in France, 2.3% in Italy and 1.2% in Britain.

Markets also were rattled by another rise in crude oil prices. Near-term crude futures in New York jumped $1.25 to $37.44 a barrel, nearing the Iraq war high of $37.83 last March.

U.S. oil inventories are near 28-year lows. Yet on Monday, oil ministers from Venezuela and Qatar said the Organization of the Petroleum Exporting Countries still planned to cut production in April.

For travel-related stocks, the Madrid bombings and the continuing rise in oil costs have been a double-whammy. Delta Air Lines on Monday blamed higher fuel costs in warning that it expected a first-quarter loss of about $400 million, compared with a previous estimate of as much as $350 million.

Delta shares sank $1.08, or 12%, to $7.76. They have tumbled 40% since early January.

Among other travel issues, Continental Airlines slid $1.55 to $11.45, Northwest Airlines lost $1.32 to $8.78, Walt Disney dropped 77 cents to $25.33 and Hilton Hotels fell 52 cents to $15.19.

After regular trading ended, conglomerate 3M helped lift some of the day’s gloom by raising its profit estimates for the first quarter and full year. 3M shares fell $1.35 to $74.87 in regular trading, then jumped to $76.87 in after-hours activity.

Some analysts said the 3M forecast, and expectations for generally strong first-quarter earnings, could put a floor under the market soon.

“It could be a very fast ‘correction,’ ” said Robert Mikkelsen, head of equity capital markets at brokerage Advest Inc. in New York.

Also, Federal Reserve policymakers, meeting today, are expected to reiterate that interest rates can stay at low levels for some time.

Treasury bond yields, which slid last week as some investors sought safer securities, were little changed Monday. The 10-year T-note eased to 3.76% from 3.78% on Friday.

Market Roundup, C9