U.S. Stocks Falter To End Lower; FedEx A Factor

NEW YORK (MarketWatch) -- U.S. stocks closed lower Thursday, after Wall Street stepped back from two days of Federal Reserve-triggered gains to consider reduced outlooks from shipper FedEx Corp. and the National Retail Federation.

"FedEx cutting its annual earnings forecast is bothersome; it is a telling sign for the pace of the U.S. economy in that it really acts as a proxy for things ordered on and delivered via the Internet," said Art Hogan, chief market strategist at Jefferies & Co.

The Dow Jones Industrial Average shed 48.9 points at 13,766.7, with 20 of its 30 components ending in the red.

Home Depot Inc. led the Dow's declines, with its stock down 2.4%.

The S&P 500 Index fell 10.28 points to end at 1,518.75 and the Nasdaq Composite Index ended 12.19 points down at 2,654.29.

"Market action is uninspired, as a lack of positive catalysts inspired some profit-taking after the Fed-induced two-day rally, said Frederic Ruffy, analyst, Optionetics.

Trading volume hit nearly 1.3 million at the New York Stock Exchange, where declining stocks topped advancing issues more than 2 to 1. At the Nasdaq, almost 1.8 billion shares were traded, and declining stocks edged ahead of those advancing by 9 to 5.

Pause button

"Any explanation of how stocks are doing has to be predicated over the two-day celebration of FOMC [Federal Open Market Committee] cutting interest rates. As we roll into day three of this Mardi Gras, it appears some logic has settled in," said Hogan.

On Wednesday, U.S. stocks closed higher, extending the prior day's rally in cheering the Fed's surprise move to slash interest rates by half a percentage point.

On Capitol Hill, central bank chief Ben Bernanke and Treasury Secretary Henry Paulson testified before a House panel on the embattled mortgage markets, with Bernanke warning that more delinquencies and foreclosures can be expected in the subprime, adjustable-rate mortgage market. .

Yet the talk on Capitol Hill appeared to have little impact on Wall Street. "The larger statement from Ben Bernanke came on Tuesday," according to Hogan.

Before the opening bell, stock futures scaled back early losses after the release of fresh weekly data showing a drop in on first-time claims for unemployment insurance.

"The data continue to suggest that the labor market is much healthier than the August payroll reading would suggest," Lehman Brothers analyst Drew Matus wrote in an early note.

The Conference Board reported its gauge of future economic growth fell 0.6% in August, indicating slower growth ahead.

"Economic growth is likely to continue in the near term, although at a slower pace," said Ken Goldstein, an economist at the private research group. .

Short circuit

Retail was among the sectors to pull lower, with Circuit City Stores Inc. tumbling 18% after reporting a wider than expected second-quarter loss.

Pier 1 Imports Inc. declined 4% after the home-furnishings retailer posted a 4.8% comparable-store sales drop.

Shares of Kohl's Corp. fell 1.3% after its board approved a $2.5 billion share-repurchase program. .

Adding insult to injury, the National Retail Federation is projecting the slowest gain in holiday sales since 2002, saying declining housing markets and tightening credit would likely put a crimp in spending during the season viewed as crucial for most retailers. .

The brokerage sector was again in the spotlight after Lehman Brothers Holdings and Morgan Stanley kicked off quarterly financial results with mixed results on Tuesday and Wednesday.

On Thursday, results came in mixed: Goldman Sachs Group reported a 79% profit rise for the third quarter. Its stock was off 1%.

But Bear Stearns Cos. saw its quarter results fall short of expectations. Bear Stearns also announced plans for stock repurchases. Its stock fell 0.2%.

FedEx factor
Package-delivery firm FedEx lowered its full-year earnings outlook, citing worries about the strength of the economy. Its shares fell 2.9%.

Also on the earnings front, Palm Inc. forecast current-quarter revenue in line with estimates. Its shares slid 1.3%.

Oracle Corp. climbed 1.4% ahead of reporting results after the close.

Shares of Nasdaq Stock Market gained 2.3% after it struck a multifaceted deal with Borse Dubai involving equity interests in the London Stock Exchange and Scandinavian bourse operator OMX. A Qatari investment fund, however, is threatening to scotch the deal. .

Other markets

The dollar fell sharply across the board, hitting an all-time low against the euro, while the Canadian dollar reached one-to-one parity with the U.S. dollar in early trade, marking the first time the Canadian unit has seen that level since the 1970s. .

Amid the dollar's weakness, gold futures continued their ascent, closing up $10.40 an ounce at $739.90. It touched a high of $746.30, a level a lead-month contract has not seen in at least 27 years. .

Crude futures topped $83 a barrel on the NYME, with October crude closing at another record level of $83.32 a barrel, up $1.39 or 1.7%.

In a related word, the NYME said that it set a daily volume record for crude futures on Wednesday, with 626,447 contracts traded on its electronic-trading platform, surpassing the prior record of 616,688 contracts traded Sept. 6.

Treasurys continued to fall, pushing yields higher with worries about inflation in the wake of the Fed's rate cuts on Tuesday. The benchmark 10-year Treasury note was down 25/32 at 101 28/32, with a yield of 4.638%, up from 4.526% late Wednesday. .

Overseas markets were mixed. The Nikkei 225 tacked on 0.2% , and the FTSE 100 slipped 0.8% in London.

By Kate Gibson