Dour Forecasts and Downbeat News Send Stocks Falling

A slew of dour corporate forecasts, more downbeat news about the health of the economy and fears about a possible war with Iraq sent stocks tumbling Monday, yanking the Nasdaq down to its lowest level since 1996.

The threat of a second Gulf War also pushed oil and gold prices higher, while fresh evidence of economic weakness sent already-low yields on Treasury securities to levels not seen since the 1950s.

“The mood in general is very negative and most people are demoralized,” said Lance Zipper, director of equity trading for Brean Murray & Co. “We just have to wait for earnings to come out. That’s the only thing that can lead us out of these doldrums.”

The tech-laden Nasdaq composite index lost 36.16 points, or 3%, to 1,184.93, closing below 1,200 for the first time since September 1996 and breaking through the low of 1,206 it hit Aug. 5 during this summer’s big sell-off.

The Dow Jones industrial average fell 113.87 points, or 1.4%, to 7,872.15, after recovering from an earlier loss of almost 200 points. The Standard & Poor’s 500 index slid 11.69 points, or 1.4%, to 833.70.

Losers trounced winners by more than 2 to 1 on the New York Stock Exchange and by more than 3 to 1 on Nasdaq. Volume was moderate.

All three indexes have been on a monthlong losing streak. Since Aug. 22, the Dow has lost nearly 1,200 points--although the Dow and the S&P; still are above the five-year lows they hit in July.

Analysts say the strength of the economic recovery has been investors’ main concern, particularly with the release of earnings warnings this month.

Monday’s news gave investors little reason to believe that a turnaround would happen soon and left open the possibility of a double-dip recession.

The New York-based Conference Board reported its index of leading economic indicators fell 0.2% last month--a bigger drop than analysts were expecting and the third straight monthly decline for the closely watched barometer.

On the profit front, JDS Uniphase fell 27 cents, or more than 12%, to $1.87 after the optical technology company lowered the outlook for its fiscal first quarter, which ends Monday. The selling spread across the tech sector. Microsoft tumbled $2.23 to $45.23, while Texas Instruments dropped 83 cents to $14.95.

Retail stocks fell after Wal-Mart Stores said September sales probably would come in at the low end of estimates. Wal-Mart declined $2.10 to $52.60, and Target fell $1.70 to $31.96.

Investors also were focused on what the Federal Reserve would do at its meeting today. Although the market wants to see how the central bank handles interest rates, analysts say there is equal interest in how the Fed assesses the economy.

“You’d be afraid of hearing the Fed say that things aren’t getting better. What you’re hoping for is that they’ll say that, in looking at all indicators, they’re really seeing things picking up,” said Brian Bruce, director of global investments at PanAgora Asset Management Inc.

Bond traders didn’t wait for the Fed to act, however. The yield on the 10-year Treasury note fell to 3.70%, from Friday’s close of 3.78%, as the decline in stocks and growing concern the U.S. may invade Iraq fueled demand for the safest securities. It was the 10-year note’s lowest yield since August 1958.

In other highlights Monday:

* Oil and natural gas companies’ shares surged as the price of oil rose on speculation about war in the Middle East. Another factor driving the price increase was Tropical Storm Isidore, which slammed Mexico’s Yucatan Peninsula and disrupted oil shipping.

The S&P; index of oil and gas stocks climbed 1.5%. In New York trading, the near-month crude oil futures contract jumped to nearly $31 a barrel.

* Semiconductor stocks dragged on the market after Credit Suisse First Boston cut its investment outlook on 14 chip equipment makers, including Applied Materials and KLA-Tencor, citing a dampened capital spending environment.

Applied Materials fell 74 cents to $11.20, while KLA-Tencor dropped $1.39 to $26.63. Intel, the world’s largest maker of computer chips and a Dow component, fell 77 cents to $14.13.

* Financial stocks also were weak. J.P. Morgan Chase slid 93 cents to $19.25, while American Express tumbled 51 cents to $31.27.

* Shares of ImClone Systems, OSI Pharmaceuticals and Abgenix fell after the Food and Drug Administration staff questioned the effectiveness of Iressa, a cancer drug that’s similar to medicines the biotechnology companies are developing. ImClone fell 68 cents, or 10%, to $6.06; OSI fell $1.74, or 12%, to $13.06; and Abgenix lost 83 cents, or 13%, to $5.81.

Market Roundup, C8-9