Microsoft and IBM decline as economy slows

US stocks fell after Microsoft Corp and International Business Machines Corp said a recovery in demand for software and computers isn't imminent.

The Standard & Poor's 500 Index had its biggest weekly loss in more than three months.

"We're looking at continuing disappointment," said Robert Bissell, president of Wells Capital Management, which oversees US$110 billion in Los Angeles. "Everybody hoped companies wouldn't continually guide expectations down. And people use technology as a bellwether."

The S&P 500 slid 12.82, or 1.4 percent, to 901.78. Computer- related shares contributed more than half the loss. The Dow Jones Industrial Average dropped 111.47, or 1.3 percent, to 8,586.40.

The NASDAQ Composite Index fell 47.56 to 1,376.19. The 3.3 percent decline was its largest since Dec. 9.

For the week, the S&P 500 shed 2.8 percent, the most since the five days ended Oct. 4. The Dow lost 2.3 percent and the NASDAQ 4.9 percent. All three retreated for the first week in three.

Stocks were also hurt after the University of Michigan's consumer confidence index unexpectedly fell this month and two government reports suggested an economic rebound is slowing. The Federal Reserve said industrial production dropped 0.2 percent in December, and plant use slipped to its lowest level in nine months.

Profits for the S&P 500 will rise about 12.9 percent in the fourth quarter from a year ago, according to Chuck Hill, Thomson First Call's director of research. That's down from the 19.9 percent increase analysts had forecast at the start of the period.

"You'll need to grin and bear it during the fourth quarter of 2002 earnings period and through the first and second quarters of 2003," said Lois Roman, a money manager at Deutsche Asset Management, which oversees about US$720 billion. "You're going to have very mixed signals and responses from these companies."

Analysts polled by First Call expect a 10.5 percent rise in this quarter's earnings for the S&P 500; they predict 9.9 percent growth in the second period.

Two stocks fell for every one that rose on the New York Stock Exchange and the NASDAQ Stock Market today. Some 1.35 billion shares traded on the Big Board, 1 percent below the three-month daily average. Exchanges are closed on Monday for the Martin Luther King Jr. holiday.

Microsoft dropped US$3.89 to US$51.46. The software maker said sales and earnings for the year ending June 30 will be below the average estimates from analysts surveyed by Thomson First Call. Microsoft also said it will pay its first dividend and split its shares for the ninth time since it initially sold stock to the public in 1986.

The company, which is also the world's biggest by market value, sees "pretty soft business demand," Chief Financial Officer John Connors said.

"Some people thought we were on the verge of a massive rebound in technology spending, and I don't see that," said Philip Orlando, chief investment officer of Value Line Asset Management, which oversees US$5 billion.

IBM, the largest computer maker, shed US$4.75 to US$81.30. Fourth- quarter net income dropped 56 percent from a year earlier.

Excluding the purchase of PricewaterhouseCoopers LLP's business-consulting unit in October, revenue from services dropped 1 percent, IBM said.

John Joyce, IBM's chief financial officer, said he expects the software market to remain "difficult."