Stocks Slide As Service-sector Data Signal Contraction
NEW YORK (MarketWatch) -- U.S. stocks opened sharply lower early Tuesday, after the release of a key gauge of the service sector signaled contraction in January, while Yahoo Inc. was again in the spotlight as a broker said investors shouldn't buy the stock any longer.
The Institute for Supply Management said its non-manufacturing index fell to 41.9% in January from 54.4% in December, well below the 53.0% expected by economists. Readings below 50% indicate most firms are contracting.
"The ISM index fell off a cliff," said Peter Cardillo, chief market economist at Avalon Partners. "It's one more piece of bad news on the economy, adding to the credit woes, the downgrades, and the political arena heating up."
The Dow Jones Industrial Average fell 192 points to 12,442, with 28 of its 30 component stocks in negative territory.
Among Dow components, insurance giant AIG along with financials stocks American Express , Citigroup Inc. and JP Morgan Chase , fell the most.
The outlook for stocks of many financial firms remains clouded by uncertainty over charges linked to bad home loans. At the same time, the insurers of bonds tied to those loans are also coming under heavy pressure, threatening to worsen an ongoing credit crisis in global financial markets.
Wall Street firms and regulators are said to be working on a plan to bail-out these insurers.
"The real problem is not just the sour economic problems but the bond insurers and not knowing whether that rescue plan is going to come into place," said Avalon's Cardillo.
Meanwhile, shares of bond insurers Ambac Inc. and MBIA Inc. were on the rise Tuesday.
The S&P 500 Index lost 21.6 points to 1,359 in early trading, while the Nasdaq Composite Index dropped 28 points to 2,354.
Trading volumes showed 160 million shares exchanging hands on the New York Stock Exchange, with declining issues topping gainers by a ratio of 6 to 1. On the Nasdaq, 262 million shares traded, with decliners topping gainers by 18 to 5.
Downbeat Yahoo
Among technology shares, Yahoo rebounded from early losses to gain 0.3%.
It earlier fell over 1.3% after Banc of America Securities downgraded prospective Yahoo buyer Microsoft to neutral from buy. "Even if Yahoo shareholders approve a deal with Microsoft, we believe the acquisition could face significant regulatory hurdles in the U.S. and particularly in the EU, which could delay the acquisition from closing for quite some time."
U.S. stocks suffered a downbeat session Monday, with the Dow industrials falling 108 points, the S&P 500 dropping 14 points and the Nasdaq Composite retreating 30 points.
The U.S. dollar still put in sizeable gains Tuesday against the euro and the yen, as a rate hike from Australia put pressure on the low-yielding Japanese currency and data out of Europe was on the weak side.
With the dollar on the ascent, gold futures for April delivery fell about $20 an ounce. Crude-oil futures fell $1.72 to $88.30 a barrel.
There were a number of earnings reports, including conglomerate Tyco International and corn refiner Corn Products International topping analyst earnings estimates.
NYSE Euronext reported a 39% rise in adjusted profit, and Toyota Motor said its profit rose 7.5% in the last quarter.
National Semiconductor may see pressure after warning of lower quarterly sales.
News Corp. Chairman and CEO Rupert Murdoch said separately his company won't bid for Yahoo. News Corp. owns MarketWatch, the publisher of this report.
Overseas, the Nikkei 225 fell 0.8% in Tokyo and the FTSE 100 fell 0.3% in late morning trade.
By Nick Godt