Stocks closed at session lows Monday, erasing gains from the previous week, on weakness in the U.S. dollar. The pharmaceutical sector was particularly hard-hit after an unfavorable U.S. Supreme Court ruling on a Maine initiative to lower prescription drug prices. Additional terrorist attacks overseas over the weekend weighed on sentiment, according to Standard & Poor's MarketScope.
The Dow Jones industrial average finished down 185.58 points, or 2.14%, to 8,493.39. The broader Standard & Poor's 500 stock index fell 23.53 points, or 2.49%, to 920.77. The tech-heavy Nasdaq composite index was lower by 45.76 points, or 2.97%, to 1,492.77.
The dollar fell after comments by Treasury Secretary John Snow suggested he would not favor a strong dollar policy. The Euro rose to historical highs against the greenback. Though a lower dollar may be a boon to U.S. exporters, investors were anxious about foreign investment in U.S. equities.
According to wire-service reports, the Supreme Court allowed a Maine program forcing drug companies to lower prices on prescription drugs to proceed. While the court warned that the Maine program may not survive further court challenges, the ruling represented a setback fo drug makers, who claimed that the program violates federal law.
The ruling sent shares of pharmaceutical companies Merck (MRK ) and Pfizer (PFE ) lower by more than 5%.
Meanwhile, investors are once again keeping an eye on geopolitical events. Suicide bombings in Morocco killed 41 people over the weekend, and President George W. Bush issued a fresh warning that al Qaeda remains a threat.
After a busy week of economic data last week, this week's docket should be relatively light. Monday's only significant economic relase was the April leading indicators index, which rose 0.1%. Notes economic research firm MMS International, "Six of the components rose, paced by consumer expectations, stock price gains, and money supply, while four components fell, paced by deliveries and jobless claims."
On Tuesday, the April Treasury budget is expected. MMS forecasts a surplus decline to $50 billion from $67.2 billion in March.
More economic news to come this week includes Thursday's report on weekly initial jobless claims. But investors should be focused on Fed chairman Alan Greenspan's testimony before the Joint Economic Committee on Wednesday.
In corporate earnings news, home improvement retailer Lowe's (LOW ) reported a 22% rise in profits for the first quarter, but lower-than-expected revenue growth. The company, No. 2 behind Home Depot (HD ), also warned of potential weakness going forward.
Toymaker Toys R Us (TOY ), posted an increased first quarter loss Monday, citing to weak consumer spending and the lack of a must-have toy. The 3 cents a share loss topped a 2 cents per share loss in the previous first quarter, but was in line with analysts' expectations.
After Monday's close, Agilent Technologies (A ) announced a second-quarter loss of 31 cents a share vs. a 55 cents a share loss a year ago.
Tuesday's session brings more corporate earnings releases of note. Home Depot, office supplier Staples (SPLS ), and computer maker Hewlett Packard (HPQ ) are slated to announce quarterly results.
Shares of biotechnology firm Genentech (DNA ) soared more than 40% Monday, on the success in Phase III trials of its colon cancer drug Avastin.
On the commodities front, the weak dollar drove solid gains in gold prices.
Prices of U.S. Treasuries were lower on profit taking after recent gains. Weakness in stocks tempered selling.
Though leading indicators rose, the increase was slight and within expectations and thus not expected to excite sellers. With little economic news expected this week, traders eagerly await Fed chairman Alan Greenspan's comments Wednesday.
MMS notes that increased geopoltical uncertainty after last week's terrorist strikes in Saudi Arabia and Morocco could also support prices of Treasuries.
European markets closed much lower Monday, hampered by a weakening U.S. dollar. London's FTSE index was down 107.7 points, or 2.66%, to 3,941.3. The Bank of England pegged U.K. economic growth at 2.5% to 3% for next year, less than government ministers had estimated.
In Paris, the CAC-40 index fell 127.58 points, or 4.26%, to 2,867.29. In Frankfurt, the DAX index decreased 138.4 points, or 4.63%, to 2,850.68.
In Asia, stocks finished lower. Japan's Nikkei 225 index fell 78.16 points, or 0.96%, to 8,039.13. Losses were led by bank declines after the government's rescue of Resona Holdings over the weekend. Meanwhile, Hong Kong's benchmark Hang Seng index decreased 5.81 points, or 0.06%, to 9,087.37.