Stocks Finish with Sharp Losses

Friday's data on retail sales, consumer sentiment, and inflation at the wholesale level will give investors plenty to chew on

Stocks finished near the lows of the session Thursday as President Bush called for military action against Iraq, Federal Reserve Chairman Alan Greenspan made tepid comments on the economy, and a report showed another rise in new jobless claims.

The Dow Jones industrial average lost 201.76 points, or 2.35%, to 8,379.41. The Nasdaq composite index slumped 35.80 points, or 2.72%, to 1,279.65. And the broader Standard & Poor's 500-stock index fell 22.55 points, or 2.48%, to 886.90.

On Friday, investors will have more economic data to contemplate. Reports on retail sales, the producer price index, and the latest read on the University of Michigan's consumer sentiment index will give Wall Street more indications on the health of the economy.

The markets were dealt a triple blow Thursday: comments from Bush on Iraq, Greenspan's testimony on the economy to Congress, and bad jobless claims data. Implications of a possible war with Iraq have investors worried. President Bush made a passionate speech, urging world leaders to destroy Saddam Hussein's weapons of mass destruction. He concluded that millions of lives would be at risk should the U.N. not act. Inaction would render the U.N. "irrelevant" if it does take a firm line with Iraq, he said. While Bush called Iraq a "grave and gathering danger," U.N. Secretary General Kofi Annan said in his address to the assembly that the U.S. should not act unilaterally.

Greenspan said in his testimony to the House Budget Committee that the economy had withstood several blows, including the September 11 terrorist attacks, lower investment and falling stocks, but some of the "depressing effects still linger." He also said the was concerned about the rising deficit and the potential difficulties in returning to a more fiscally responsible state. His comments don't necessarily hint at a rate cut, but they also do not rule one out, says economic-research outfit MMS International.

Worse-than-expected unemployment data have Wall Street concerned. "Given the uptrend [in jobless claims], Fed officials will undoubtedly continue to cite 'downside risks,' although the data are probably still showing enough resilience in aggregate to justify keeping rates on hold," says Maury Harris, chief U.S. economist at UBS Warburg. Initial jobless claims rose 19,000 to the 426,000 level in the week ended September 7. MMS International had expected claims to fall 3,000 to the 400,000 level.

In corporate news Thursday, Manhattan prosecutors and the Securities and Exchange Commission charged Tyco International's (TYC ) former CEO, Dennis Kozlowski, and two other former executives with criminal and civil charges. The company sued Kozlowski, accusing him of stealing more than $100 million from the company.

Almost all stocks on the blue-chip Dow average were substantially lower. Among the Dow's biggest losers, Johnson & Johnson (JNJ ) slid after an analyst at AG Edwards lowered his rating on the stock to 'hold', from 'buy'.

McDonald's (MCD ) fell 5.2% after CIBC World Markets cut its outlook for the third quarter. An analyst for the firm cited concern that the fast food giant's remodeling strategy would not improve results.

Treasury Market

U.S. Treasuries surged in price as stocks fell on comments from President Bush and Fed Chairman Greenspan.

MMS International expects Friday's preliminary September reading for the University of Michigan's consumer sentiment at 88.0, up from August's final reading of 87.6. "It is our view that, at the least, sentiment should stabilize around current levels," MMS says. The modest improvement will likely pressure Treasuries slightly. The data are due at 10 a.m. EDT.

Overall retail sales are expected to increase 0.5% in August, while the figure, excluding car sales, should gain 0.3%. Providing the biggest boost should be autos. The stronger sales data will weigh on Treasuries, but sustained pressure is unlikely ahead of Michigan sentiment.

The latest producer price index update should show an increase to 0.2%, while the core index, which excludes volatile food and energy prices, should increase by a more modest 0.1%, says MMS International. Recent comments by Fed officials indicate that the central bank is currently more concerned with the "slow and uneven" recovery than with inflation, which should leave the market focused on retail sales and Michigan sentiment data.

World Markets

European stocks finished down amid Bush's U.N. address and Greenspan's testimony to Congress. London's Financial Times Stock exchange index dropped 125.80 points, or 2.99%, to 4,084.90. Germany's DAX index shed 162.82 points, or 4.54%, to 3,421.87. France's CAC index closed off 155.18 points, or 4.57%, to 3,241.84.

Asian stocks ended higher. Tokyo's benchmark Nikkei 225 index finished up for the fourth straight session. The index gained 15.15 points, or 0.16%, to 9,415.23. In Hong Kong, the Hang Seng Index added 13.98 points, or 0.14%, to 9,896.33.

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