Stocks Falter on Jobs Data

Investors will be focused on the Fed's interest rate commentary next Tuesday for direction

Stocks finished in the red Friday after chip giant Intel's (INTC ) reported a disappointing mid-quarter update and a job rolls report for November showed a smaller than expected increase.

On Friday, the Dow Jones industrial average lost 68.14 points, or 0.69%, to 9,862.68. The broader Standard & Poor's 500 index fell 8.22 points, or 0.77%, to 1,061.50. The Nasdaq Composite index declined 30.98 points, or 1.57%, to 1,937.82.

Investors reacted negatively to a U.S. payrolls report that was less robust than many hoped. Jobs rose by 57,000 in November after a revised 137,000 gain in October. Still, the unemployment rate fell to 5.9% from 6.0%. Manufacturing jobs fell 17,000.

"Though the headline payroll figure is friendly for bonds, the data are still consistent with a strong rebound in the economy," says MMS International, an economic research group. "Nevertheless, the FOMC can maintain a friendly tone next Tuesday."

The technology sector came under pressure following Intel's update. The firm expects fourth-quarter revenue to be between $8.5 billion and $8.7 billion, up from a previous range of $8.1 billion to $8.7 billion. Investors were disconcerted that the top end of the sales forecast was not higher. Plans for a $600 million gooodwill impairment charge related to its wireless communications and computing unit were also troubling.

In other company news Friday, JetBlue Airways (JBLU ) lowered its estimate for fourth-quarter operating margin, blaming lower fares and the California wildfires, which hurt travel.

Albertsons (ABS ), the No. 2 U.S. grocer, reported a drop in quarterly profit, due to two labor disputes.

Meat giant Tyson Foods (TSN ) said it would close two older plants to improve its manufacturing efficiency, eliminating a total of about 720 jobs.

Earnings news from large companies will be relatively light next week. Monday brings profit updates from home builder Hovnanian Enterprises (HOV ). Retailers Costco Wholesale (COST ), Autozone (AZO ), and Kroger (KR ) are due on Tuesday.

Wednesday brings an update from homemaker Toll Brothers (TOL ). On Thursday comes releases from tech names Adobe (ADBE ), Ciena (CIEN ), and Verity (VRTY ).

The markets will be watching the Federal Reserve's open market committee meeting Tuesday. Many economists expect the Fed to be ready to take a step back from its interest rate policy. "We believe that the Fed will drop the 'considerable period' language from next week's policy directive," write UBS economists in a report. The firm, however, expects the Fed to "be more patient than in previous periods of rapid recovery."

No economic reports are due Monday, with the bulk of important data later in the week. Jobless claims, November retail sales and inventories data are due Thursday. An update on producer price index and a preliminary read on the University of Michigan Consumer Sentiment index is due Friday.

Treasury Market

Treasuries rallied with the two-year note, euro dollar and Fed funds futures all leading gainers. Much of the activity is short-covering of previous bets that the Fed might shift its statement next week to be more growth-oriented. Those positions are now getting scaled back, says MMS.

In other economic data Friday, October factory orders rose 2.2% after a large upward revision to September growth of 1.4%. Shipments jumped 0.7% while inventories were flat after a 0.3% decline. The inventory-to-shipments ratio fell to 1.29. The strong data are consistent with the strong economic growth scenario.

As expected, President Bush scrapped controversial steel tariffs on Thursday, 16 months ahead of schedule, to avert trade retaliation from Europe and Asia.

World Markets

European bourses finished lower following the disappointing payrolls news in the U.S. London's Financial Times-Stock Exchange 100 index fell 11.20 points, or 0.26%, to 4,367 on profit taking.

In Paris, the CAC 40 lost 39.41 points, or 1.13%, to 3,457.14. Germany's DAX index was down 33.05 points, or 0.85%, to 3,841.73, despite a report that October industrial production rose more than the expected 2.4%.

Asian stock markets ended lower following Intel's update. Tech issues on Japan's Nikkei 225 index led losses. The index fell 56.53 points, or 0.54%, to 10,373.46. In Hong Kong, the Hang Seng index shed 27.92 points, or 0.23%, to finish at 12,314.73.

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