Stocks Drop as Rally Fizzles

Stocks pulled back Thursday as investors remained cautious about the outlook for corporate earnings, the economy and oil prices.

Disappointing profit reports from health insurance giant Aetna and from Dow Chemical helped squelch an early rally.

The Dow Jones industrial average finished down 2.08 points at 11,100.43.

The Nasdaq composite index resumed its summer slide, losing 15.99 points, or 0.8%, to 2,054.47.

The Dow transportation stock index, considered a barometer of the economy’s trend, fell 1.4% to its lowest level since February.

Losers outnumbered winners on the New York Stock Exchange and on Nasdaq.

Analysts said some investors were anxious in anticipation of the government’s report today on second-quarter economic growth.

Short-term bond yields continued to slide as some traders bet on a weak growth number that would put more pressure on the Federal Reserve to stop tightening credit.

Exxon Mobil shares rose to a record high after the company’s robust earnings report, but profit takers then took the stock down. It ended off 13 cents at $66.47.

Aetna, the third-largest U.S. health insurer, tumbled $6.71 to $33.25 after saying it would spend more than forecast to treat insured patients.

Dow Chemical, the country’s largest maker of chemicals, dropped $3.74 to $33.54, the most since 2002, after reporting lower second-quarter results and warning that higher energy prices may cause profit to decline for the year.

Although many big U.S. companies have reported strong second-quarter earnings, investors have shown no patience with companies that miss estimates.

Wall Street also is concerned that profit growth overall could dim in the second half if the economy continues to slow.

The government’s report today on second-quarter gross domestic product could give more clues to the economy’s trend.

In the Treasury bond market, sentiment appears to be growing that the economy will weaken enough to allow the Fed to stop raising short-term interest rates.

The yield on six-month T-bills slipped to 5.19% from 5.20% on Wednesday.

The yield now is the lowest since June 16.

The 10-year T-note yield ended at 5.04%, up from 5.03% on Wednesday but down from a recent peak of 5.24%.

The government sold $14 billion of new five-year T-notes at a yield of about 5%.

In other trading, near-term oil futures in New York rose 60 cents to $74.54 a barrel.

Gold continued to rebound, adding $10.80 to $632.40 an ounce in New York trading.

Among the day’s market highlights:

* Transportation stocks were led lower by trucking firm Ryder, which fell $3.16 to $48 despite reporting quarterly earnings that beat expectations.

Other stocks losing ground in the transports sector included FedEx, down $4.84 to $101.82, and AMR, parent of American Airlines, which fell 54 cents to $22.49.

Some analysts consider the trend in transportation stocks to foreshadow economic shifts.

* Technology shares were hurt in part by a Microsoft executive’s statement that the release of the company’s new Vista operating system remained on schedule but could be delayed again if the product isn’t up to quality standards.

Microsoft lost 50 cents to $23.87, Google declined $3.10 to $382.40 and Cisco Systems was down 25 cents to $17.69.

But Akamai Technologies jumped $6.83 to $36.83 after reporting quarterly earnings that beat estimates.

* Aetna’s slide helped pull rival Cigna down $8.76 to $95.43. Health Net fell $2.80 to $44.28.

* In the gaming sector, Harrah’s Entertainment dropped $3.49 to $60.36. The world’s largest casino company said second-quarter profit excluding some costs was 95 cents a share, less than the $1.02 average analyst estimate.

Some analysts said the results suggested a slowdown in the gaming business. At Harrah’s, “Business from core customers looked strong, but we are beginning to see some weakness on the fringes of the mass market” for gambling, said Matthew Jacob, an analyst at Majestic Research.

* Among local stocks moving on profit reports, veterinary clinic chain VCA Antech surged $3.78 to $34.69 after reporting a 22% increase in quarterly operating income.