US stocks fell as investors questioned whether the market's 10-day rally can be sustained. Merck & Co, Citigroup Inc and General Electric Co declined.
"We had the market go up too fast over a couple-day period," said John Forelli, a portfolio manager at Independence Investment LLC in Boston, which oversees US$25 billion. "The Fed cutting interest rates a month earlier than expected hardly seems like a reason for the NASDAQ to go up 10 percent." The NASDAQ Composite Index dropped 18.73, or 0.9 percent, to 2,163.41, even as it finished its third-biggest weekly gain. The index soared 33 percent over 10 sessions, spurred in part by the Federal Reserve's surprise rate cut on Wednesday.
The Dow Jones Industrial Average lost 113.86, or 1.1 percent, to 10,579.85. The Standard & Poor's 500 Index declined 10.72, or 0.9 percent, to 1242.98.
For the week, the NASDAQ climbed 10 percent. It remains 12 percent lower for the year and 57 percent below its March 2000 record.
The Dow rose 4.5 percent this week, trimming its year-to-date loss to 1.9 percent. The S&P 500 gained 5 percent. It was the first time since Jan. 26 that all three had consecutive weekly gains.
Some investors sold shares on Friday because the outlook for corporate profit growth has deteriorated, even as companies including Microsoft Corp and Boeing Co have reported earnings that were better than expected.
First-quarter profits for S&P 500 members have fallen 7.6 percent, according to First Call/Thomson Financial, with 47 percent of its companies reporting. For 2001, earnings are expected to fall 2.3 percent, down from the 9.2 percent gain analysts forecast at the beginning of the year and the 2 percent decline projected yesterday.
More than three stocks fell for every two that rose on the New York Stock Exchange. Some 1.3 billion shares traded on the Big Board, according to preliminary figures, up 6.7 percent from the three-month daily average.
Drug and biotechnology companies led the losses.
Merck fell US$4.66 to US$73.61. While the No. 2 US drugmaker reported first-quarter earnings that matched estimates, it said the first quarter was probably stronger than the rest of the year will be.
Merck said it's "comfortable" with First Call's 2001 profit forecast of US$3.15 to US$3.25 a share. The highest analyst estimate, according to First Call, is US$3.28.
Pharmacia Corp lost US$1.15 to US$48.55, Amgen Inc declined US$1.52 to US$59.56, and MedImmune Inc fell US$4.27 to US$36.19.
Financial shares fell, snapping a three-day winning streak sparked by optimism that the rally would boost trading and sales of new securities.
Citigroup, the largest financial-services company, dropped US$0.88 to US$49.42; Morgan Stanley Dean Witter & Co, the third-largest US securities firm, lost US$1.27 to US$66; and credit- and charge-card issuer American Express Co dropped US$1.46 to US$41.50.
Honeywell International Inc lost US$0.38 to US$47.22. The company, which is being acquired by General Electric, reported earnings that were 12 percent below analysts' estimates. The biggest maker of automated controls said the slowing economy and higher energy and raw-materials costs reduced profits. GE lost US$0.41 to US$48.10.
Nortel Networks Corp lost US$0.85 to US$16.95. The largest maker of fiber-optic equipment said its first-quarter loss widened and sales fell as demand faded for fiber-optic and telecom equipment. The company also said there's a 50 percent chance that sales this quarter might fall below the first quarter's.
Microsoft rose US$0.96 to US$69. The biggest software maker said fiscal third-quarter profit rose 2.8 percent as business-software sales boosted earnings during a personal-computer industry slump. Sales increased a faster-than-expected 14 percent.
Goldman, Sachs & Co analyst Rick Sherlund raised his rating to "recommended list" from "outperform." Boeing climbed US$1.07 to US$61.70.
The biggest planemaker said first-quarter operating profit more than doubled to US$0.89 a share, US$0.9 higher than analysts expected, as it delivered more commercial aircraft than a year ago.
PMC-Sierra Inc, a maker of chips for communications equipment, surged US$3.41 to US$44.81. Chief Executive Robert Bailey said he expects sales to rebound by the fourth quarter. The company had a first-quarter loss on acquisition-related costs and restructuring charges after a decline in demand.
EBay Inc advanced US$0.66 to US$50.65. First-quarter profit surged as the largest Internet auction site attracted more listings and raised fees. EBay said revenue in the second and third quarters may beat expectations. Revenue rose 79 percent to US$154.1 million, exceeding analysts' forecasts by US$5 million.
Conexant Systems Inc fell US$1.40 to US$11.05. The maker of chips for dial-up modems said third-quarter sales will be flat to lower because customers are depleting their inventories rather than place new orders.
Transmeta Corp, which makes semiconductors for notebook computers, sank US$5.90 to US$18.70 after the company forecast little or no revenue growth in the second quarter from the first.
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