Wall Street dips on weak numbers


McDonald's cut its 2002 estimates, citing lower than expected sales in Europe and the U.S.

NEW YORK (CNN/Money) -- A warning from McDonald's and a surprisingly weak manufacturing number fueled concerns about the U.S. economy and corporate earnings Tuesday.

That triggeredng a triple-digit decline by the Dow Jones industrial average and more modest losses on the Nasdaq.

"The fundamentals have undercut any efforts for the market to rally on Iraq news," said Larry Wachtel, market analyst with Prudential Financial.

"We had softness in the economic data today that indicates we're in this industrial recession. Capping that are the earnings warnings.

"So there's nothing to offset the economic news and stocks are muddling along," Wachtel observed. "Until we get some surety about the economy or corporate earnings, we'll continue to have this drifting, dismal kind of day."

Dow off 2 percent

The Dow Jones industrial average fell 172.63, or 2 percent, to 8,207.55, erasing an initial triple-digit bounce early in the session. The Nasdaq composite fell 15.94, or 1.2 percent, to 1,259.94, while the Standard & Poor's 500 index lost 17.58, or about 2 percent, to 873.52.

The major indexes had spiked sharply higher at the open on news that a standoff between the United States and Iraq may be averted. Sentiment quickly soured, wiping out the early gains for the Dow, following a warning from McDonald's and weak economic data.

Technology stocks found little incentive to sustain the early rally as investors stayed cautious in anticipation of Oracle's quarterly report.

Shares of software maker Oracle dipped 45 cents to $8.58 in after-hours trading after reporting first-quarter profit of 7 cents a share,in line with Wall Street estimates but down from 9 cents a year ago. The company's revenue also slipped to $2.03 billion, compared with $2.27 billion during the year-ago period.

Oracle outlook

Brokerage UBS Warburg slashed its earnings forecast for Oracle to 36 cents from 40 cents a share for 2003 and to 39 cents from 47 cents for 2004, ahead of the report, saying it expects cautious comments out of Oracle about its forward guidance.

Dow component J.P. Morgan also warned after the close, lowering its third-quarter forecast.

Tuesday's trading session marked the one-year anniversary of the day the Dow Jones industrial average tumbled 684 points -- its worst point loss in history -- when U.S. financial markets reopened on Sept. 17, 2001, after being closed following the terrorist attacks.

After intense U.S. and international pressure, Iraq said it would allow unfettered access to weapons inspectors. Iraq made the offer Monday in a letter to the United Nations.

However, the Bush administration greeted the development with skepticism, saying the move may be a ploy by Iraqi leader Saddam Hussein to divide the U.N. Security Council over a resolution allowing military action against Saddam's regime.

On the economic agenda, investors get a key read on inflation Wednesday with the August Consumer Price Index, expected to rise 0.2 percent.

Also on tap is the July trade balance. Economist expect a trade deficit of $37 billion.

Dow stock McDonald's, the No. 1 restaurant chain, depressed the blue-chip index after the company cut its third-quarter and 2002 estimates, citing lower-than-expected sales in the United States and Europe.

McDonald's shares stumbled to a seven-year low, making it the second-most active stock on the New York Stock Exchange.

IBM, Intel to collaborate

IBM estimates were lowered by brokerage Salomon Smith Barney. The firm trimmed its third-quarter earnings and 2003 revenue estimates on the computer hardware maker, citing a bearish outlook for worldwide information technology spending growth in 2003.

In other news, IBM and Intel said they plan to collaborate in a venture to design and develop technology for a new class of compact computers known as blade servers.

Shares of pharmaceutical firm Merck fell after rival AstraZeneca PLC said the U.S. Food and Drug Administration (FDA) approved a label for its blood pressure medicine Atacand that shows the drug is superior to Merck's hypertension pill Cozaar in lowering blood pressure.

Oil and defense stocks, including Exxon Mobil (XOM: down $1.33 to $33.07) and United Technologies (UTX: down $1.65 to $58.15), also dragged on the blue-chip index as a potential war scenario appeared to be temporarily averted.

On the Nasdaq, software issues showed weakness ahead of Oracle's report. Another factor at play was a warning from software firm JDA Software (JDAS: down $4.68 to $8.02). The company said late Monday its third-quarter software license revenue and operating results are likely to fall short of expectations due to a slowdown in sales.

On a positive note, Microchip Technology (MCHP: up $1.64 to $17.00) offered a ray of light for the beaten-down semiconductor sector. The company said late Monday it expects to top its second-quarter forecast, citing strength in its consumer and automotive units.

But Credit Suisse First Boston turned cautious on the company, lowering its 2003 estimates to $684 million in revenue from $689 million and to 64 cents a share from 66 cents, and trimming its 2004 revenue estimate to $785 million from $787 million.

Reminding investors of the long litany of corporate scandals to have tainted corporate America, embattled manufacturer Tyco International (TYC: up $0.35 to $16.89) disclosed details of millions of dollars in what it claims were unauthorized loans, many forgiven, to former CEO Dennis Kozlowski and other previously unnamed executives as far back as 1996.

Manufacturing activity sluggish

In the day's key economic report, manufacturing activity in August showed an unexpected decline for the first time in 2002. Industrial production fell in the United States last month as the manufacturing sector lost strength amid a sluggish recovery in the broader economy.

The Federal Reserve said production fell 0.3 percent in August after rising a revised 0.4 percent in July, while factories used just 76 percent of capacity, compared with a revised 76.2 percent in July. Economists, on average, expected production to rise 0.2 percent and capacity use of 76.1 percent in August, according to Briefing.com.

Treasurys reversed course to push higher on the heels of a weak economic report. The dollar slipped against the euro and the yen

With the war premium drained away, oil prices slumped after the Iraq news, with light crude oil futures down 58 cents to $29.32 a barrel in U.S. trading, where gold also lost ground.