S&P 500 has its biggest drop in two weeks

US stocks fell, pushing the Standard & Poor's 500 Index to its biggest drop in two weeks, after a government report showed gross domestic product grew at a slower pace than expected last quarter amid the war in Iraq.

Intel Corp and Micron Technology Inc declined after Smith Barney cut its recommendation for the semiconductor industry on concern that demand will slow. RJ Reynolds Tobacco Holdings Inc.

had the largest decline in its four-year history as the cigarette maker slashed its earnings forecast.

"The market was hit by the GDP number," said Brian Smolinski, who helps manage US$35 billion at Fifth Third Asset Management in Grand Rapids, Michigan. It "was a reminder of the prewar conditions, which were not that favorable. People are looking back and saying `yes, we did have a rough period.'"

The S&P 500 slid 12.62, or 1.4 percent, to 898.81, its steepest decline since April 9. All 10 of the index's economic groups fell. The Dow Jones Industrial Average shed 133.69, or 1.6 percent, to 8,306.35. The NASDAQ Composite Index lost 22.69, or 1.6 percent, to 1,434.54.

All three benchmarks had their first back-to-back declines since April 8 and April 9. Five stocks fell for every three that rose on the New York Stock Exchange, while three dropped for every two that gained on the NASDAQ Stock Market. Some 1.3 billion shares traded on the Big Board, 3 percent below the three-month daily average.

For the week, the S&P 500 and NASDAQ rose 0.6 percent, while the Dow average dropped 0.4 percent. The S&P 500 reached a three- month high on Wednesday. For the month, it's gained 6 percent as first-quarter earnings beat analyst estimates.

The US economy grew at a 1.6 percent annual rate from January through March after expanding 1.4 percent in the previous three months, the Commerce Department said. Economists surveyed by Bloomberg News had forecast a 2.4 percent gain.

"People were expecting better results for the quarter," said Kevin Logan, senior market economist at Dresdner Kleinwort Wasserstein. "It is another sign that growth is not as strong as they anticipated. If GDP continues to grow slowly, corporate profits are likely to grow slowly as well."

For the 329 members of the S&P 500 that have reported first- quarter results, earnings have climbed 11 percent, according to Thomson Financial. Companies are topping expectations by an average of 6.8 percent. Analysts anticipate profit growth will slow to 6.3 percent this quarter, Thomson Financial said.

Intel, the world's largest semiconductor maker, shed 67 cents to US$18.28. Micron, the No. 2 maker of computer-memory chips, lost US$0.67 to US$8.69. Texas Instruments Inc, the world's largest maker of chips that power mobile phones, slid US$0.96 to US$18.39.

Applied Materials Inc, the world's biggest chip-equipment maker, lost US$0.86 to US$14.19.

Smith Barney analyst Clark Westmont cut his recommendation for the industry to "underweight" from "market weight."

Inventories of chips have risen and share prices already reflect earnings prospects, Westmont said in a note to clients. Demand for semiconductors will also decline between May and October, he said.

The Philadelphia Semiconductor Index lost 5 percent, with all 17 members declining. The index had rallied as much as 20 percent this year.

RJ Reynolds slumped US$6.02 to US$28.18. Its 18 percent drop was the biggest since the company was spun off from RJR Nabisco Holdings Corp in June 1999. The second-biggest US cigarette maker slashed its annual earnings forecast by more than half because lower-price rivals are eroding sales. First-quarter sales tumbled 20 percent. Altria Group Inc, which owns Philip Morris USA, dropped US$1.89 to US$31.01.