US stocks fell, completing their first losing week in three, after Federal Reserve Chairman Alan Greenspan said there are "significant risks" an economic recovery will fail to take hold.
Tyco International Ltd, Wal-Mart Stores Inc. and Citigroup Inc helped lead the decline as the Standard & Poor's 500 Index erased its year-to-date gain.
"Stocks were on a tenuous footing to begin with," said Jack Ablin, chief investment officer at Harris Trust & Savings Bank, which manages US$30 billion. ``This new guarded view of the economy may push investors toward bonds'' and out of stocks, he said.
The S&P 500 fell 10.95, or 1 percent, to 1,145.60. The NASDAQ Composite Index lost 24.78, or 1.2 percent, to 2,022.46. The Dow Jones Industrial Average declined 80.33, or 0.8 percent, to 9987.53.
For the week, the S&P 500 dropped 2.3 percent and the Dow fell 2.7 percent, also wiping out its gain for the year. Year-to-date, the S&P 500 has lost 0.2 percent and the Dow. 0.3 percent.
The NASDAQ shed 1.8 percent this week, paring its gain for this year to 3.7 percent.
Stocks, which bounced between gains and losses much of the day, dropped after Greenspan said in a speech to the Bay Area Council Conference that "it is still premature to conclude that the forces restraining economic activity here and abroad have abated enough to allow a steady recovery to take hold."
Treasuries rallied as the comments boosted speculation the Fed may cut interest rates a 12th time in 13 months. The yield on the benchmark note maturing in 2011 dropped 11 basis points to 4.87 percent.
Companies that have benefited most from the NASDAQ's 44 percent rally since September dropped, including Cisco Systems Inc and Nvidia Corp.
"We are worried that all this money flowed into the [technology] group," said Adam Friedman, co-manager of the US$700 million Armada Large Cap Value fund. "Valuations were getting high and we have made quite a bit of money in them. We still like tech, but it's more prudent to take chips off the table."
Friedman has been selling shares of technology companies including Fairchild Semiconductor Corp, Verity Inc and Hyperion Solutions Corp. About 70 percent of 50 technology stocks studied are too expensive given their earnings prospects, Merrill Lynch & Co analyst Steve Milunovich wrote in a report.
Microsoft Corp would have to increase profit 94 percent to justify its price, Milunovich said. Analysts expect 16 percent growth. Comverse Technology Inc and Maxim Integrated Products Inc. would have to boost earnings by 57 percent and 98 percent, he calculated. Wall Street's consensus calls for their profit to decline 11 percent and 36 percent, respectively.
Cisco, the largest maker of networking equipment, fell US$0.79 to US$20.21
Business Week quoted a Harvard Business School professor in its Jan. 21 issue as saying the company's accounting practices obscure how much Cisco actually made during the 1990s.
Computer graphics chipmaker Nvidia lost US$2.92 to US$63.07. It has rallied 145 percent since mid-September and was the top-performing stock in the S&P 500 and the NASDAQ 100 last year.
Tyco, a diversified manufacturing company that is the biggest maker of electronic controls, drop-ped US$4.67 to US$50.25; Wal-Mart, the largest retailer, lost $1.20 to US$55.80; and Citigroup, the largest financial services company, declined US$0.78 to US$49.07.
Kmart Corp plummeted for a third day, losing US$0.90 to US$3.30 on concern the third-largest US discount chain lacks the funds to carry out CEO Chuck Conaway's turnaround plans.
Microsoft declined US$0.67 to US$68.61, giving up a 1.5 percent gain, after a US District Judge rejected Microsoft's offer to give public schools in poor neighborhoods $1 billion worth of computers to settle class-action lawsuits claiming it overcharged customers.
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