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Dow ends down 258.44, Nasdaq off 64 on rates, Microsoft

NEW YORK: US stocks slid on Wednesday with interest-rate worries pounding banking stocks while Microsoft Corp., the world's No. 1 company in market capitalisation, fell on word of a new anti-competition probe.

Adding to the market's skittishness was news that hackers had managed to temporarily hobble some of the most high-profile Web sites, including Internet media company Yahoo! Inc. and online auctioneer eBay Inc.

"Microsoft is clearly not out of the woods yet, but I think the bigger reason for the drop is interest rates are now a clear and present danger again," said Chris Dickerson, analyst at Global Market Strategists Inc. "The market is overbought and when it is overbought, it becomes vulnerable to any news event. The hacker news was a catalyst."

The sell-off intensified after long bond yields surged on comments from US Treasury Secretary Lawrence Summers, who indicated supply of the 30-year US Treasury bond might not become as scarce as previously thought. Higher bond yields generally make fixed-income debt more competitive with stocks as investments.

The Dow Jones industrial average suffered its eighth-largest point decline ever, skidding 258.44 points, or 2.36 percent, to 10,699.16, which is nearly a three-month low. The broader Standard & Poor's 500 Index dropped 30.01 points, or 2.08 percent, to 1,411.71.

Dragging down the Dow were Microsoft, which weakened 5-15/16 to 104 after the No. 1 software company was identified as the target of an anti-competition probe by the European Union over its Windows 2000 operating system.

Falling even more was financial services giant American Express Co., which lost 6-5/8 to 156-3/8 amid general weakness among banking stocks.

The Nasdaq composite index, which had rallied early in the session on strong earnings from computer networking company Cisco Systems Inc., lost 64.35 points, or 1.45 percent, to 4,363.15. It had closed above the 4,400 mark for the first time on Tuesday.

Cisco, the world's biggest maker of equipment that directs traffic on the Internet, backed off its earlier highs, strengthening 3 to 128-13/16 after posting second-quarter profits that beat analysts' estimates.

"I think Wall Street is a little surprised that the Nasdaq did not move counter to the Dow and the S&P 500 on the back of Cisco earnings," said Joseph Barthel, chief investment strategist, Fahnestock & Co. "I think fears of interest rates are kicking up again."

Yahoo gave up 10-13/16 to 362-5/16 and eBay lost 5-3/4 to 164 after the hacker news.

Analysts said there was a change of heart after a rally on Tuesday sparked by an anti-inflationary Labour Department report showing fourth-quarter productivity among US workers more than offset a rise in compensation. Wall Street was gearing up for a new batch of economic data that could provide further clues on whether the Fed plans to keep raising interest rates, with figures on retail sales for January due out later this week.

The 30-year US Treasury bond changed course after the Summers comments, falling 1-1/32 after being up earlier in the session ahead of a 30-year bond auction on Thursday. Its yield rose to 6.31 percent from Tuesday's close of 6.23 percent.

Interest-rate-sensitive financial services stocks took the bond news hard with the Philadelphia Stock Exchange's bank index falling 2.98 percent.

The stocks retreat was broad, with energy, finance, toys, semiconductors, Internet and aerospace among the affected sectors, while metals plus tires and rubber made gains.

"Investors think the only place to get gains in this time of pricing pressures and rising interest rates is technology," said Rick Meckler, senior managing director at Liberty View in Jersey City, N.J. "The biggest contrast you can see is between Cisco and Nike. Cisco reported really phenomenal growth while Nike is more typical of most stocks after reporting nowhere near Cisco's growth."

Nike Inc., the footwear giant, lost 3-7/16 to 33-1/4 after the company warned its results would not meet Wall Street's estimates because of the woes of some of the industry's leading retailers.

On the New York Stock Exchange, decliners throttled advances 19 to 10 with about 1.05 billion shares changing hands. There were 99 stocks hitting new highs and 182 hitting new lows.

The bright spots were mainly trading on the Nasdaq, with the likes of computer maker Sun Microsystems Inc. up 4-9/16 at 91-9/16 after saying it planned to boost its sales and marketing activities in the data storage market.

But semiconductor stocks slipped with the Philadelphia Stock Exchange's semiconductor index off 1.80 percent after earlier touching a year high on positive earnings and bullish comments from analysts. TheStreet.com's Internet index lost 1.25 percent after also being up earlier in the session.

Internet retailer Amazon.com Inc. lost 2-7/8 to 80-1/4 after The New York Times' Market Place column said the bond market seemed wary about the company.

One non-technology stock pleasing investors on the earnings front was beverage and snackfoods giant PepsiCo Inc., which rose 11/16 to 34 after posting better-than-expected fourth-quarter profits. It also said it would split its Frito-Lay snack unit into two regional groups.

Goodyear Tire & Rubber Co., the world's biggest tire company, rose 11/16 to 22-3/4 after reporting sharply lower fourth-quarter income that still beat Wall Street's expectations.

Shares of Tricon Global Restaurants Inc., the name behind Taco Bell, were active, rising 1/16 to 29-15/16, ahead of the Louisville, Ky.-based company's earnings announcement. -Reuters