Stocks Slide on Wall St. and Abroad

Wall Street slid to a five-month low Monday as investors continued to wrestle with turmoil in Iraq, record oil prices and prospects for higher interest rates.

U.S. stock declines were relatively modest compared with heavy losses in some foreign markets, especially in Asia. For the moment, analysts say, many American investors are seeking to reduce the risk level in their portfolios by dumping foreign shares rather than targeting U.S. issues.

Still, the selling on Wall Street is further eroding the big gains racked up in 2003.

The Dow Jones industrial average fell 105.96 points, or 1.1%, to 9,906.91, its lowest close since Dec. 5.

The broader Standard & Poor’s 500 index gave up 11.60 points, or 1.1%, to 1,084.10, its lowest finish since Dec. 17.

Share prices dropped at the outset of trading on news that a suicide bomber had killed the leader of the U.S.-appointed Iraqi Governing Council.

Oil prices climbed again, in part on worries over Middle East supplies. Near-term oil futures in New York rose 17 cents to $41.55 a barrel, a record-high close.

But many analysts say the stock market’s main problem isn’t Iraq or oil. They say the biggest weight on the market is the probability that the Federal Reserve will begin tightening credit this summer, responding to the stronger economy.

“This is all about a transition from an easier-credit environment

A rise in interest rates from the generational lows reached last year forces investors to reconsider how attractive stocks are compared with alternatives such as bonds, analysts note. Higher rates also raise corporate costs and have the potential to slow the economy and thus corporate earnings growth.

Despite the worries about interest rates, some experts say the losses so far on Wall Street don’t amount to more than a classic short-term “correction” in an ongoing bull market.

The Dow has lost 7.7% from its 2004 high reached Feb. 11. The S&P; 500 is down 6.4% from its high reached the same day.

The technology-dominated Nasdaq composite, which fell 27.61 points, or 1.5%, to 1,876.64 on Monday, is down 12.9% from its 2004 peak set Jan. 26.

A correction typically chops 5% to 15% off major indexes before running its course.

The pattern of blue-chip indexes holding up better than technology shares suggests that many investors are seeking to lower the risk in their portfolios, but aren’t worried enough to bail out of stocks across the board, said Subodh Kumar, chief investment strategist at CIBC World Markets in New York.

“People are more hedging their bets than becoming overly cautious,” he said.

That increased risk-aversion also is helping to fuel the selling of foreign stocks, particularly those in volatile emerging markets, Kumar and others said.

South Korea’s main stock index tumbled 5.1% on Monday, leaving it down 22.1% from its 2004 high. The Turkish market slumped 3.7% and is down 23.8% from its high this year.

In India, fears that the newly elected government might halt economic reforms triggered an 11.1% drop in the Bombay market’s main index.

U.S. investors pulled a record net $464 million from emerging-market stock mutual funds in the week ended Wednesday, according to AMG Data Services, which tracks fund cash flows.

“People are becoming risk-averse very quickly,” said Bob Adler, who heads AMG.

U.S. stock funds also began to see outflows last week, Adler said, but the cash leaving, $2.4 billion, wasn’t near a record.

Charles Biderman, a Santa Rosa, Calif.-based analyst who also tracks mutual fund purchases and sales, said there is no indication of “panic selling” by investors in domestic funds.

“We are a bit surprised that the equity selling has not been stronger given the recent market declines,” he said.

That may bolster the view of optimists who say the U.S. market is trying to make a stand at current levels.

Although falling stocks outnumbered winners by about 2 to 1 on the New York Stock Exchange on Monday, and by more than 3 to 1 on Nasdaq, that was much less severe than the losers-to-winners ratios on other recent down days, and trading volume was merely moderate.

Among the day’s highlights:

* Treasury bond yields continued to pull back from the 22-month highs reached Thursday, as some investors funneled money into bonds.

The 10-year T-note yield dropped to 4.69% from 4.77% on Friday and 4.85% on Thursday.

Data from the Treasury on Monday showed that foreign investors boosted their holdings of Treasury securities by a record net $61.5 billion in March. Analysts said the numbers showed that foreign central banks were aggressive buyers of U.S. bonds.

But the data also showed that foreigners sold a record net $13.5 billion in U.S. stocks in March -- indicating that some foreign investors were losing their appetite for U.S. shares well before Americans lost their appetite for foreign issues.

* Many major markets around the world suffered bigger hits than U.S. blue-chip indexes. Japan’s Nikkei-225 index fell 3.2% to 10,505.05. A Dow Jones index of 50 leading European stocks lost 1.5%.

* Commodity-related stocks were down sharply on fears of slower economic growth in India and China, which could depress demand for basic materials. Copper miner Phelps Dodge slid $2.04 to $60.60, Alcoa lost $1.08 to $28.70, and lumber giant Weyerhaeuser fell $1.14 to $57.10.

Many industrial shares also slumped. Caterpillar tumbled $2.15 to $73.54 and Eaton was off $1.38 to $56.40.

* Energy stocks were mixed as oil prices hit a record. Exxon Mobil eased 22 cents to $43.05 and Unocal slipped 23 cents to $35.04, but Amerada Hess gained 44 cents to $73.85.

* Some investors sought out classic “defensive” issues -- companies whose sales and earnings typically aren’t hurt by higher interest rates. Colgate-Palmolive rose 42 cents to $56.17; drug firm Merck added 19 cents to $46.64.

* Real estate investment trust shares were mostly higher. They were among the biggest market losers in April. Prentiss Properties added 28 cents to $31.05, Vornado Realty gained 34 cents to $50.55, and AvalonBay Communities was up 71 cents to $51.87.