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Stocks slide rising interest rates { August 5 2003 } Original Source Link: (May no longer be active)
http://reuters.com/financeNewsArticle.jhtml?type=businessNews&storyID=3225485http://reuters.com/financeNewsArticle.jhtml?type=businessNews&storyID=3225485
Stocks Slide on Rising Interest Rates
Tue August 5, 2003 05:45 PM ET
By Vivian Chu
NEW YORK (Reuters) - Stocks ended sharply lower on Tuesday as rising bond yields offset strong services sector data and cast doubts upon an economic rebound.
Stocks traded in the red for most of the session, but a tepid response to a government's auction of Treasury notes spurred a late afternoon sell-off.
The sale of $24 billion in three-year U.S. Treasury notes drew a weak reaction from investors, driving the yield of the benchmark 10-year note up to 4.40 percent from 4.29 percent at Monday's close. The 10-year note's price, which moves in the opposite direction of its yield, fell 27/32 -- almost three-quarters of a point -- to 93-30/32.
Investors fear that higher borrowing costs could crimp a pickup in the economy. The auction results also raised concerns that the Treasury's auctions of five- and 10-year notes later this week may also face poor demand.
"Everybody's talking about the bonds. The three-year auctions weren't as good as people were expecting, and you've seen a sell-off in the (bond) market and stocks are following suit," said Taai Izushima, head trader for Daiwa Securities America.
After the close, Cisco Systems Inc. CSCO.O grabbed headlines with its earnings release. Shares of Cisco, the world's largest maker of equipment that directs Internet traffic, fell 5 percent to $17.91 on Instinet from their Nasdaq close after posting lower sales from a year ago and disappointing many investors who had looked for stronger quarterly results.
Cisco reported fourth-quarter net profit of $982 million, or 14 cents a share, compared with a net profit of $772 million, or 10 cents a share, in the year-ago quarter. Its earnings excluding one-time items matched Wall Street forecasts. Cisco's stock ended the regular session at $18.86, down 2.08 percent or 40 cents.
The Dow Jones industrial average .DJI ended down 149.72 points, or 1.63 percent, at 9,036.32. The broader Standard & Poor's 500 Index .SPX lost 17.36 points, or 1.77 percent, to 965.46. The technology-laced Nasdaq Composite Index .IXIC finished down 40.56 points, or 2.37 percent, at 1,673.50, based on the latest available data.
On the Big Board and Nasdaq, decliners outnumbered advancers by a ratio of 2 to 1. About 1.3 billion shares changed hands on the New York Stock Exchange, while 1.7 billion shares traded on Nasdaq.
GOOD NEWS DISMISSED
Earlier, investors shrugged off a report showing surprisingly strong growth in the U.S. services sector. The Institute for Supply Management said its index of non-manufacturing activity jumped to 65.1 in July, the highest reading in the survey's six-year history, and beating economists' forecasts for a drop to 58.0 from 60.6 in June.
Still, investors dismissed the news and said their concerns were focused on the battered manufacturing sector, which has yet to show firm signs of a turnaround.
"The services sector is important, but if you're looking for economic growth, you have to look to the manufacturing sector," which so far has been weak, said Tim Smalls, managing director at S.G Cowen. "Manufacturing is far more important because that's what puts people to work."
Topping the New York Stock Exchange's most-active list was General Electric Co. GE.N . GE's stock fell after it said it would pay $5.4 billion to buy most of the commercial lending business of Transamerica Finance Corp. from Dutch insurer Aegon N.V. to expand its finance arm GE Capital. Shares of GE, a Dow component, fell 68 cents, or 2.39 percent, to $27.80.
On the Nasdaq, the shares of Costco Wholesale Corp. COST.O took a beating after the warehouse retailer issued a profit warning. Costco shares sank 18.67 percent, or $6.90, to $30.06 after it said its quarterly earnings would be as much as 16 percent below Wall Street forecasts. Costco blamed lower margins and rising costs for health care and workers' compensation.
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