Mid-East woes weigh on Wall St.


Increased violence in the Middle East made for a weaker start

By Kim Khan
CNN/Money Staff Writer

NEW YORK (CNN/Money) -- U.S. stock markets ended little changed Tuesday after seesawing throughout the day, with stronger-than expected economic numbers tempered by renewed concerns about violence in the Middle East.

The Nasdaq composite index shed 10.33 to close at 1,542.96. The Dow Jones industrial average finished up 18.70 at 9,706.12. The Standard & Poor's 500 added 0.97 to end the day at 1,037.14.

Coming off a strong, broad-based rally Monday, stocks struggled to find direction amid conflicting news and anticipation of business software maker Oracle's earnings report after the close of trading.

"A really good bottom looks a little bit like it did last Friday and Monday, but then has follow through, it doesn't just sort of sputter out," Charles Blood, market strategist with Brown Brothers Harriman, told CNNfn's Street Sweep.

"I'm a little bit concerned, in the short-run, that there's downside risk."

"We're caught in a sort of psychological trap here and sometimes to get out you've got to go down first," Blood said.

On the flip side, Art Hogan, chief market analyst at Jefferies & Co., said some really good news could sustain a rally.

"We need a significant catalyst," Hogan said. "Whether it be great second-quarter earnings or blowout economic data or some marquee firms coming out with a mid-second-quarter preview."

Market breadth also was mixed for the day. On the New York Stock Exchange, winners narrowly beat losers as $1.18 billion shares changed hands. On the Nasdaq, decliners topped gainers more than 9-to-8 on volume of 1.55 billion shares.

After the closing bell, Oracle (ORCL: down $0.22 to $8.98, Research, Estimates), reported a fiscal fourth-quarter profit and revenue that topped Wall Street's expectations as new licenses for its software sold at a stronger-than-expected rate

Investors had been wary ahead of the report, with Oracle shares falling during regular trading. But the stock bounced back after hours jumping more than 13 percent.

Chip sector

Investors were also looking for guidance in the chip sector after the bell from the book-to-bill ratio, an important report on semiconductor equipment demand.

Applied Materials (AMAT: down $0.58 to $20.46, Research, Estimates), the largest maker of semiconductor production equipment, saw gains early in the day after the company told Reuters that it sees orders of more than $300 million in China for the fiscal year. But the stock fell into negative territory later on.

Communications chipmaker Broadcom (BRCM: up $0.91 to $22.15, Research, Estimates) was higher after Morgan Stanley upgraded the stock to "overweight" from "equal-weight," noting the company's valuation and improving fundamentals.

Dow component IBM (IBM: down $1.20 to $75.94, Research, Estimates) fell after Morgan Stanley reduced its 2002 and 2003 earnings-per-share estimates on the computer products leader, saying that hardware remains a low priority for 2002 information technology spending. The firm also said weakness in the company's hardware business suggests a risk to second-quarter revenue.

Countering IBM among Dow issues was construction and mining equipment maker Caterpillar (CAT: up $1.41 to $49.45, Research, Estimates), which was solidly higher.

Charles Payne, CEO of Wall Street Strategies, said he expects large multinational companies to do well going forward as the dollar continues to struggle, which could help stocks of companies such as Caterpillar. The dollar weakened against the euro and was slightly higher against the yen.

Israel violence

The markets started the day lower after news of another apparent suicide bombing in Israel.

Israeli authorities said the latest attack took place on a bus outside Jerusalem during Tuesday morning's rush hour, killing at least 19 people and the bomber, and injuring at least 50 others.

Jefferies' Hogan said it was encouraging that stocks seemed to shake off the latest Mideast trauma.

"I think the fact that we had this awful bombing ... and yet the market seems to be moving on, that it's starting to become sort of priced into the marketplace," Hogan told CNNfn's The Money Gang.

"We may get investors to get back in off the sidelines at some juncture as we start to get earnings reports for the quarter."

But Jim Waggoner, chief market strategist at Pace Capital Management, said he was not happy about the market shrugging off stronger-than-expected economic news.

The government said housing starts posted the biggest one-month jump in seven years, rising 11.6 percent to an annual rate of 1.73 million. That's well above the 1.6 million rate anticipated by economists and the 1.53 million rate in April.

Consumer prices

Consumer prices in May were unchanged, below the 0.1 percent rise expected by economists and the 0.5 percent boost in April. Excluding food and energy, the Consumer Price Index grew at the anticipated pace of 0.2 percent.

"When you see those housing numbers come in and the market not responding favorably to them ... it doesn't give you the kind of warm and cosy feeling that you'd like to have if you're an institutional investor or even (an) individual and looking for an entry point," Waggoner said.

Robert Harrington, head of block trading at UBS Warburg, said underlying issues on corporate governance and credit risk would have to be addressed to move the markets.

"There will be some opportunities in the market, but I still think we're going to have to do some work on the healing side before confidence is restored," Harrington said.

Asian-Pacific stocks finished higher Tuesday. European markets ended mostly lower.

Treasury prices were little changed, with the 10-year note yield at 4.85 percent. Light crude oil futures closed 69 cents lower at $25.65 a barrel in New York, where gold rose $1.60 to $319.70 an ounce.