Stocks Sink on Weak Economic Data

A report showing the manufacturing sector is growing at a slower rate, along with lackluster profit outlooks, weighed on the market

Stocks finished sharply lower on Thursday, after a new economic report showed the U.S. manufacturing sector grew for a sixth straight month in July, but at a far slower pace than in June.

Investors, meanwhile, appeared to show little reaction to the arrest of two past top executives of bankrupt telecommunications company WorldCom -- ex-Chief Financial Officer Scott Sullivan and former Controller David Myers -- for their role in the $3.85 billion accounting scandal.

Weak economic data dominated market sentiment. The Institute for Supply Management (ISM) July index –- a gauge of activity in the manufacturing sector -- fell more than expected to 50.5% from 58.2% in June. In a separate report, June construction spending fell 2.2%.

In addition to economic news, downbeat earnings forecasts and results from companies, including Adobe Systems (ADBE ), dragged on the markets. Adobe Systems cut its third-quarter profit outlook by as much as 25% and lowered its profit forecast by 10% on Wednesday, according to news reports. Adobe shares lost more than 29%.

Among other stocks in the news, oil giant and Dow component ExxonMobil (XOM ) on Thursday reported a 41% drop in quarterly earnings alongside a downturn in profit margins in its oil refining business, according to news reports. Shares of ExxonMobil shed 8%.

Another oil giant Royal Dutch/Shell Group announced a 39% drop in second-quarter net income, attributing the decline to higher operating costs and a weak market for refined petroleum products. Royal Dutch Petroleum (RD ) is the majority shareholder of Royal Dutch/Shell Group.

Plus, shares of Cisco Systems (CSCO ) were lower by 8% on rumors its CEO was resigning -- speculation the company has denied, according to wire-service reports. Cisco reports its fourth quarter and fiscal 2002 financial results on Aug. 6.

The Dow Jones industrial average was down 229.97 points, or 2.63%, to 8,506.62. The tech-heavy Nasdaq composite index dropped 48.10 points, or 3.62%, to 1,280.16. The broader Standard & Poor's 500-stock index was off 26.96 points, or 2.96%, to 884.66, hurt by Cisco and semiconductors. Money sought refuge in bonds and softdrink and food companies.

The market will be watching carefully the next key economic data release, the employment report for July, scheduled for release at 8:30 a.m. EDT Friday. Standard & Poor's economic research unit MMS expects a 65,000 increase in July nonfarm payrolls. The unemployment rate is expected to drift up to 6.0% from 5.9%. The general theme of the report should be one of continued firming in the labor market from the depressed hiring conditions seen late last year in the wake of the September 11 terrorist attacks.

Treasury Market

U.S. Treasuries closed higher amid the weaker-than-expected economic data and equity losses. Traders were looking ahead to the July jobs report. The bond market is fearful of weaker figures, so data in line with estimates might be cause for some profit taking Friday, says S&P MMS.

World Markets

European markets closed down. In London, the Financial Times-Stock Exchange 100 index tumbled 201.70 points, or 4.75%, to 4,044.50, on news that July UK PMI fell to 48.9 from 50.6, which worse than expected.

In France, the CAC 40 lost 174.67 points, or 5.11%, to 3,240.71. And in Germany, the DAX Index was down 93.69 points, or 2.53%, to 3,606.45, as the German PMI eased to 50.1 in July from 50.2 in June.

In Asia, the markets ended with losses. The Nikkei was down 84.43 points, or 0.85%, to 9,793.51. The losses were led by exporter shares, on renewed concerns over the U.S. economy after the country's second-quarter GDP slowed to a seasonally-adjusted 1.1% annual rate, compared to 5.0% for the first quarter.

In Hong Kong, the market lost 87.34 points, or 0.85%, to 10,180.02.

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