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US stock rebound may stall on fears of new regulation

US stock market gains over the next six weeks will be limited by wariness of corporate accounting methods in the wake of Enron Corp's collapse, investors say.

Quarterly reports to the Securities and Exchange Commission "will be scrutinized as never before," said Marc Klee, manager of the US$1 billion John Hancock Technology Fund. "That'll put a lid on the market."

While most companies have reported their full-year profits in press releases and conference calls, the period in which they will file detailed earnings statements with the SEC is arriving.

Investors will be paying more attention than ever, having seen Tyco International Ltd and WorldCom Inc shares plunge this year.

Companies have 90 days from the end of the fiscal year to file with the SEC, so the majority of corporations on a calendar year schedule face a March 31 deadline. Filings for the first three fiscal quarters are due after 45 days.

While investors may see limited gains over the six weeks, the Dow Jones Industrial Average rose 1.6 percent this week, trimming its year-to-date loss to 1.2 percent. The Standard & Poor's 500 Index rose 0.7 percent and the NASDAQ Composite Index fell 0.8 percent this week. For the year, the S&P 500 is 3.8 percent lower, and the NASDAQ has lost 7.4 percent.

The Dow closed above 10,000 for the first time in a month on Thursday, only to be dragged down Friday after the New York Times said International Business Machines Corp used a gain on the sale of a business to report a rise in quarterly profit. That tapped into investor skittishness over accounting practices.

IBM shares ended the week 2 percent lower, extending their decline this year to 15 percent. The company said it "properly and fully" disclosed the US$340 million sale.

Nortel, Nvidia While analysts and investors will comb through earnings reports as they are filed, corporate executives and their accountants will be raising questions of their own prior to signing off on the current round of SEC filings, said John Hancock's Klee.

This will likely expand the list of companies that are being roiled by questions over their accounting, Klee said. "There will be more."

The prominence of accounting and the trustworthiness of corporate leaders in investment decisions was evident among this week's biggest decliners.

Nortel Networks Corp fell 12 percent after announcing its chief financial officer resigned because of pension plan stock trades he made in violation of company rules.

The phone equipment maker also said meeting its sales forecast might be "challenging."

WorldCom, Qwest Accounting concerns had their greatest impact this week on phone companies that have large debts. If revenue is less than the companies have indicated, that will make it harder to service the debt, investors and analysts said.

Qwest Communications International Inc plunged 21 percent as it drew down its entire US$4 billion bank credit line.
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