The Dow Jones Industrial Average and Standard & Poor's 500 Index fell, trimming gains for the week, after reports showed declines in consumer confidence and home construction.
Wal-Mart Stores Inc and International Paper Co helped lead the drop as some investors said the economic recovery may be too weak to justify a rebound in stocks the past four weeks.
The gains are at risk "if we don't begin to see some signs of improvement in the next month or so," said Eric Wiegand, who helps manage US$3 billion at Credit Suisse Asset Management's private client group.
The Dow fell 40.08, or 0.5 percent, to 8,778.06. The S&P 500 dropped 1.48, or 0.2 percent, to 928.77. The NASDAQ Composite Index added 16, or 1.2 percent, to 1,361.01, boosted by computer-chip stocks such as Maxim Integrated Products Inc.
For the week, the S&P 500 added 2.2 percent. That's the fourth weekly gain in a row, the first such streak since May 2001.
The index has rallied 16 percent from the five-year low it touched on July 23. The Dow climbed 0.4 percent this week, and the NASDAQ added 4.2 percent.
About 1.26 billion shares traded on the New York Stock Exchange, a quarter below the daily average in the second half of the year so far. About nine stocks rose for every seven that fell.
Housing starts
Stocks slumped to their lowest levels of the day in the first half hour. A Commerce Department report showed housing starts unexpectedly fell in July, their second monthly drop, suggesting builders see demand for homes slowing with the rest of the economy.
Consumers, who have helped the economy grow even as business spending slumped, were less confident in August. The University of Michigan's sentiment index dropped to 87.9 in August from 88.1 in July for its third straight decline.
Wal-Mart, the biggest retailer, declined US$0.92 to US$53.79, paring its gain for the week to 9.3 percent.
"If we lose the consumer, it's game, set and match for the economy," said Alex Vallecillo, a fund manager at National City Investment Management Co in Cleveland, Ohio, which oversees US$30 billion.
Consumer-finance companies also fell. MBNA Corp slid US$0.86 to US$19.64, Providian Financial Corp lost US$0.16 to US$5, and Household International Inc. slipped US$2.06 to US$37.54.
Alcoa Inc, the world's biggest aluminum producer, fell US$0.66 to US$24.77 after Morgan Stanley analyst Wayne Atwell cut his projection for aluminum price because of slowing demand. He reduced the stock's third quarter earnings per share to US$0.28 from US$0.31.
Procter & Gamble Co declined US$0.33 to US$90.99 after Jim Gingrich, an analyst at Sanford C. Bernstein, said the biggest consumer-products maker's outperformance compared with the rest of the market has probably run its course. Procter & Gamble has been the best performer in the Dow this year, adding 16 percent while the average fell 12 percent.
Gingrich cut his rating on Procter & Gamble to "market perform" from "outperform."
Grubman probe
Citigroup Inc slid US$0.94 to US$34.90. Jack Grubman, the analyst at its Salomon Smith Barney brokerage who championed stocks such as WorldCom Inc, quit Thursday night. Grubman and Citigroup face criminal probes, regulatory investigations and more than two dozen lawsuits over allegations that he misled investors to curry favor with potential banking clients.
Texas Instruments Inc, whose chips power half of the world's cellular telephones sold last year, said its business isn't getting worse. The company rose US$1.69 to US$21.99 after confirming its third-quarter profit forecast of US$0.09 a share and a 5 percent sales increase from the previous quarter.
Semiconductor stocks rallied. The Philadelphia Semiconductor Index climbed 6.4 percent as all 17 members rose, led by Maxim's US$3.09 advance to US$37.19.
Dell Computer Corp rose US$0.39 to US$27.53. The biggest direct-seller of personal computers reported profit that matched estimates and revenue that beat forecasts, while saying sales this quarter will rise to a record US$8.9 billion.
International Business Machines Corp, the largest computer-services company, gave the biggest lift to the S&P 500. It added US$2.85 to US$79.35.
Verizon Communications Inc and SBC Communications Inc were also among the biggest gainers in the S&P 500, rising on speculation their declines have gone too far amid concern over growth and accounting practices in their industry.
Verizon's horizon
Verizon has fallen 32 percent this year and SBC 24 percent, as stocks of other large telecommunications companies such as WorldCom Inc and Qwest Communications International Inc collapsed because of accounting misdeeds. Verizon gained US$1.24 to US$31.69, and SBC advanced US$0.63 to US$28.69.
"If you look at the stocks that have been outperforming [Friday], it's generally stocks that have been underperforming the last month or two," said Vallecillo.
AOL Time Warner Inc rose US$0.70 to US$12.56, bringing its advance for the week to 14 percent. Some investors said they were reassured that the SEC's deadline Wednesday for CEO's to certify their financial report didn't result in accounting problems at AOL.
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