Stocks finished with modest losses Wednesday on the heels of Secretary of State Colin Powell's briefing to the United Nations Security Council on intelligence suggesting that Iraq is hiding weapons from U.N. inspectors.
The market rose after the report, but then steadily faded. With eight of the 30 index components lower, the Dow Jones industrial average declined 28.05 points, or 0.35%, to 7,985.24. The broader Standard & Poor's 500-stock index lost 4.61 points, or 0.54%, to 843.59. The tech-laden Nasdaq composite index fell 4.66 points, or 0.36%, to 1,301.49.
Powell presented satellite photographs and other evidence -- including several tapes of communications within the Iraqi military -- to the Security Council at the U.N. Wednesday as confirmation of Iraq's weapons programs. He also made a case that Saddam Hussein has links to the al Qaeda terrorist group.
Hopes that there will be a unified effort by U.N. countries to topple Saddam Hussein were dashed when France, which is opposed to Bush's push for war, reacted to Powell's presentation with a proposal to strengthen weapons inspections in Iraq by tripling the number of inspectors and placing a full-time monitor in Baghdad to oversee the process, according to the Associated Press. Iraq denounced Powell's evidence.
"Even though the market rallied as Colin Powell laid out the case against Iraq, he didn't seem to change people's minds in the U.N., and that may be sparking the sell-off," said Stephen Carl, principal and head of U.S. equity trading at the Williams Capital Group. "The market will probably continue to struggle until the Security Council makes up its mind."
Economic research outfit MMS International figures that the February 14 report from weapons inspectors may be the final catalyst for the confrontation.
Technology spending was also a focus Wednesday following the latest quarterly earnings from Cisco Systems (CSCO), which was better than analysts expected. The company posted net income in its fiscal second quarter of $991 million, or 14 cents a share, compared with $660 million, or 9 cents a share. Sales, however, were lower amid the technology spending slowdown.
Cisco chief John Chambers suggested that tech spending will not reemerge anytime soon. He noted the "most challenging environment the information technology industry has ever faced." Chambers added that customers are "even more cautious" than they were at the beginning of the second quarter.
Investors Thursday will look to more tech earnings for direction. Electronic Data Systems (EDS) will report fourth-quarter earnings after the market close. Analysts are expecting earnings per share of $0.48, down from $0.81 a year ago.
Other companies' earnings will provide some signals on consumer spending. Supermarket chain Safeway (SWY) and beverage and snack giant Pepsico (PEP) will report earnings before the market open.
U.S. Treasury prices finished lower as investors siphoned money out of safe havens and into stocks after Powell's speech at the U.N. Economic research outfit MMS International says traders indicated a "sell the rumor, buy the fact" of war situation as the persuasive evidence presented by the Secretary of State indicate that military action against Iraq is not far off. But the late-session sell-off in stocks was not enough to turn things around for Treasuries.
Earlier, the market was surprised by the Treasury's increased issuance of 5-year notes and the reintroduction of 3-year notes. Although some adjustment to the cycle was expected given the rising budget deficit, the move wasn't fully expected as soon as today, MMS says.
In data expected Thursday, MMS sees a small 1.0% gain in the fourth quarter for both non-farm productivity and output, following the hefty 5.1% gains in both measures for the third quarter. A likely 3% unit labor cost gain in the fourth quarter may raise eyebrows.
U.S. initial jobless claims should edge 3,000 higher to the 400,000 level in the week ended February 1, says MMS. A number in line with that estimate would mark the fourth straight week at or below the 400,000 level. An uptick in claims would be bond-friendly.
European stocks finished higher. In London, the FTSE index added 88.60 points, or 2.47%, to 3,678.70. Paris' CAC-40 index ticked up 21.12 points, or 0.74%, to 2,884.62. In Frankfurt, the DAX index climbed 92.9 points, or 3.5%, to 2,725.88, even though Germany's unemployment rate climbed to a 4 1/2-year high of 10.3% in January.
In Asia, stocks finished mixed. Japan's Nikkei 225 index added 64.95 points, or 0.77%, to 8,549.85. Telecom stocks surged following news that Japan Telecom is in talks to sell its fixed-line operations to U.S. fund Ripplewood Holdings LLC and other buyers.
Hong Kong's benchmark Hang Seng lost 72.24 points, or 0.78%, to 9,180.47.