Markets & Finance

Stocks Kick Off New Quarter with Losses


Stocks kicked off the third quarter Monday with broad losses. A plunge in shares of WorldCom (WCOME), along with losses in other tech and biotech stocks, were the biggest drags on the market. Continuing concerns about accounting, along with some weak economic data, added to the sour mood.

The tech-heavy Nasdaq composite index tumbled 59.45 points, or 4.06%, to 1,403.76, below its post-September 11 low.

The Dow Jones industrial average fell 133.50 points, or 1.44%, to 9,109.79. And the broader Standard & Poor's 500-stock index lost 21.18 points, or 2.14%, to 968.64

Shares of embattled long-distance telephone company WorldCom resumed trading Monday and plunged 94% to $0.06. A record 1.5 billion shares of WorldCom changed hands. The stock had not traded since closing at $0.83 on Tuesday, June 25, when an audit committee announced that $3.8 billion in expenses were improperly booked as capital expenditures, forcing a restatement of earnings for the last five quarters. WorldCom shares will be delisted from the Nasdaq on Friday.

In the latest development, WorldCom told the SEC Monday it it is reviewing financial records for 1999-2001 for other possible accounting problems besides the errors disclosed last week. The SEC filed civil fraud charges against WorldCom last week after the disclosure.

Meanwhile, computer services company Electronic Data Systems (EDS) fell again on worries about its contracts with WorldCom. The weakness was exacerbated by a Wall Street Journal article discussing the relationship between large outsourcing contracts and complex accounting. IBM (IBM) and Computer Sciences (CSC) were also lower.

Elsewhere in tech, JP Morgan downgraded semiconductor stocks Altera (ALTR) and Xilinx (XLNX) to market perform from long-term buy.

In merger news, TRW (TRW) agreed to be acquired by Northrop Grumman (NOC) after it raised its offer to about $7.8 billion, or $60 per TRW share.

Among other stocks on the move, Dow component 3M (MMM) gained after the manufacturing giant raised second quarter EPS from operations guidance to at least $1.33, above the current consensus of $1.25. 3M cited improved sales volumes, primarily in the Asia-Pacific area.

Vivendi Universal (V) shares rallied on news that Chairman and CEO Jean-Marie Messier has resigned.

Tyco (TYC) gained ground ahead of the pricing of the 200 million share offering of its CIT unit. After the market close, CIT was priced at $23, below the expected range of $25 to $29 per share.

However, Merck (MRK) fell on news that it delayed the IPO of pharmacy benefits unit MedcoHealth Solutions for the second time in the last week. The underwriters expect Medco to be spun off the week of July 8.

In economic news, the June ISM report, a survey of national manufacturing activity, rose to 56.2% in June, slightly above forecast of 55.5, and up from 55.7 in May. A number over 50 indicates expansion in the manufacturing sector. Survey comments indicate that the manufacturing recovery is gaining momentum, but business is not as strong when looking at the year-over-year performance, says S&P MMS.

In a separate report, construction spending fell 0.7% in May, weaker than the expected 0.2% increase, though April was revised a bit higher to 0.4% from 0.2%.

The market will be closed for the Independence Day holiday on Thursday, and close early (1:00 p.m. ET) on Friday.

Treasury Market

Treasuries ended higher, reversing early losses as stocks lost traction. Risk aversion was the prevailing theme to start the holiday-shortened week, says S&P MMS. The data schedule turns light until Friday's payroll figures. Both Wednesday and Friday are shortened sessions for the bond market.

World Markets

European stock markets were mixed. In London, the Financial Times-Stock Exchange 100 index gained 29.40 points, or 0.63%, to 4,685.80 after June CIPS Manufacturing index fell to 50.5 from 52.7 in May. But UK house prices rose 3.3%, another sign of a firm economy.

France's CAC 40 gained fell 0.62 of a point, or 0.02%, to 3,897.37. Vivendi was higher amid a report Jean Marie Messier has resigned as president of the company. And France Telecom gained amid speculation the government might renationalize the company.

Germany's DAX index was down 15.75 points, or 0.36%, to 4,366.81. The German June Purchasing Managers' index rose to 50.2 from 49.8 in May, but some investors were worried the recent euro strength will hurt exports.

In Japan, the Nikkei 225 index fell 26.40 points, or 0.25%, to end at 10,595.44, after the bigger-than-expected improvement in the Bank of Japan's June Tankan survey boosted domestic-related shares, but weighed down exporter shares.

In Hong Kong, the markets were closed. On Friday, the benchmark Hang Seng index gained 80.46 points, or 0.76%, to 10,598.55.


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