Sun, Jul 06, 2003 - Page 10 News List

US stocks fall because of June employment report


US stocks declined after a government report showed the unemployment rate rose more than forecast in June, suggesting that any economic recovery may falter as consumers become more reluctant to spend.

"There is still weakness in the employment situation," said Michelle Clayman, chief investment officer at New Amsterdam Partners, which manages US$1.8 billion in New York. "We need to see more of the underlying economic numbers turning around for the market to have legs."

AT&T Corp dropped as Standard & Poor's lowered its credit rating on the biggest US long-distance telephone company.

The Standard & Poor's 500 Index lost 8.05, or 0.8 percent, to 985.70. The Dow Jones Industrial Average declined 72.63, or 0.8 percent, to 9070.21 and the NASDAQ Composite Index sank 15.27, or 0.9 percent, to 1663.46.

In the holiday-shortened week, the S&P 500 rose 1 percent for its fifth weekly gain in six. The Dow climbed 0.9 percent and the NASDAQ jumped 2.4 percent, its biggest advance in five weeks. US exchanges closed at 1pm on Thursday and remained closed Friday for Independence Day.

Interest rates

Stocks have rallied since March as some investors bet that the lowest interest rates in 45 years and a US$350 billion package of federal tax cuts will help drive economic growth. The S&P 500 surged 15 percent in the second quarter, reaching its highest in about a year on June 17.

AT&T dropped US$0.46 to US$19.42. Standard & Poor's cut the company's debt to the second-lowest investment grade because of increased competition and sluggish sales.

About three stocks fell for every two that rose on the New York Stock Exchange. More than 761 million shares changed hands, about half of the average for a full day in the past three months.

All 10 of the industry groups in the S&P 500 declined.

Technology shares, which have been the market's best performers this year, led the drop. Microsoft Corp, the world's biggest software maker, fell US$0.43 to US$26.45 and Intel Corp, the No. 1 semiconductor producer, lost US$0.48 to US$21.73. The S&P Information Technology Index is up 20 percent this year versus a 12 percent gain for the S&P 500.

Tech sector

"The market may have gotten ahead of itself, in particular the tech sector," said Clayman.

The US unemployment rate jumped to 6.4 percent, the highest since April 1994, from 6.1 percent in May. Economists had predicted 6.2 percent, the median forecast of 69 estimates from a Bloomberg News survey. The economy lost 30,000 jobs last month, the Labor Department said. Economists had forecast no change in June payrolls.

A weekly report on new claims for unemployment insurance also was worse than expected. The Labor Department said initial jobless claims rose last week to 430,000 from a revised 409,000.

Economists surveyed by Bloom-berg News had forecast 410,000 new claims.

The Institute for Supply Man-agement said its non-manufacturing index jumped to 60.6 in June, the highest since September 2000, from 54.5 a month earlier.

"Employment tends to be a lagging indicator," said Vladimir de Vassal, head of quantitative research at Glenmede Trust Co, which manages US$12 billion in Philadelphia. The service-industry report "provides greater assurance that the economy will be improving in the second half of 2003 and into next year," he said, and that means stocks will rise in the next year.

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