Stock Market Migraine

Wall Street began the third quarter on a gloomy note Monday as the technology-laden Nasdaq Composite carved out its lowest close in five years as investors braced for the next big accounting blowup and fretted over corporate America's soggy profit prospects.

The multibillion-dollar accounting scandal surrounding WorldCom Inc. — continued to unfold, doing little to rebuild investor confidence rapidly eroded by a string of Wall Street scandals.

WorldCom's shares lost 92.7 percent, or 77 cents, to end at 6 cents. An upbeat forecast from 3M Co. , which rose $4.40 to $127.40, helped underpin blue-chip shares early on, but it was not enough to pierce the pervasive gloom hanging over the market.

"Investor psychology is just broken right now," said Michael Murphy, head of equity trading at Wachovia Securities. "There are lots of uncertainties out there ... People are just unsure."

"There is an overall distrust of Wall Street and so people are ignoring the economic data," said Brian G. Belski, fundamental market strategist at US Bancorp Piper Jaffray.

The technology-laced Nasdaq Composite Index — slumped 59.38 points, or 4.06 percent, to 1,403.83, according to the latest available data. The Nasdaq breached the 1,423.19 closing low set on Sept. 21 soon after the Sept. 11 attacks and was the lowest close since 1,401.69 on June 10, 1997.

The Dow Jones industrial average — trimmed its early gain to slip 133.33 points, or 1.44 percent, to 9,109.93, — while the broader Standard & Poor's 500 Index — slumped 21.16 points, or 2.14 percent, to 968.65, just above its Sept. 21 closing low of 965.80.

More than 1.5 billion shares of WorldCom were traded, by far breaking the Nasdaq's record for most shares traded in an individual issue on a single day.

Monday's economic data was mixed. The Commerce Department said construction spending fell by 0.7 percent in May to the lowest level in five months.

But the Institute for Supply Management said its index of business activity rose to 56.2 percent in June from 55.7 percent in May. It was the fifth straight month that manufacturing activity increased.

"These are the best levels we've seen in two years in terms of manufacturing data," said Kevin Caron, market strategist at Ryan, Beck & Co. LLC. "It will ultimately lead to higher earnings, which is what we need to see for stock prices to move higher."

But many investors are waiting to see results of earnings reports for the second quarter scheduled to begin next week.

"Corporate America really needs to step up in the second quarter and show that companies are not going out of business and they are in fact doing business," Belski said.

Manufacturer 3M rose $4.40 to $127.40 after the company said it expects to beat analysts' expectations for second-quarter earnings because of operating efficiencies and higher sales volumes.

The value of WorldCom stock lunged to 6 cents after the telecommunications company told the government it is investigating possible irregularities in its reserve accounts. That is in addition to the $3.8 billion in disguised expenses the company disclosed last week.

WorldCom's stock had not traded since last Tuesday, when it revealed its accounting problems, and Nasdaq said it will be delisted on Friday.

Electronic Data Systems, a major provider of information technology services to WorldCom, dropped $6.70, or 15 percent, to $30.45.

TRW fell 40 cents to $56.58 after defense contractor Northrop Grumman said Monday it agreed to buy TRW for $7.8 billion, nearly $2 billion more than its original offer.

The market has been pounded since mid-May because of a string of strife in the Middle East, grim expectations for second-quarter earnings and accounting scandals at companies such as Xerox and Enron. Analysts say investors are not only worried about the outcome of second-quarter earnings reports, but also whether those results are accurate.

Declining issues outnumbered advancers by a margin of more than 3 to 1 on the New York Stock Exchange, where volume was heavy.