Stocks End Sharply Lower

A late burst of selling sent the major indexes to their lowest levels of the year. News of a record trade deficit weighed on the market

Stocks finished with losses for the third straight session Wednesday, leaving the major indexes at the lowest levels of the year. It was a broad-based decline, with notable weakness in traditional industrial cyclicals, such as Dow components Caterpillar (CAT ), United Technologies (UTX ), 3M (MMM ), and Alcoa (AA ), notes Standard & Poor's MarketScope.

The Dow Jones industrial average fell 160.1 points, or 1.53%, to 10,296.89. The broader Standard & Poor's 500-stock index lost 16.69 points, or 1.46%, to 1,123.89.

The Nasdaq composite index dropped 31.01 points, or 1.55%, to 1,964.15. Wednesday marks the four-year anniversary of the index's all-time high of 5,048.62 in 2000.

While Dow component Procter & Gamble (PG ) offered an encouraging profit outlook, news of a worse-than-expected read on the U.S. trade deficit appeared to weigh on sentiment.

"Slow job growth and a record trade gap fed into fears that the economy would slow, with profits to follow suit," says economic research outfit Informa Global Markets.

On Thursday, the key economic report is retail sales, which will be released before the market opens. Weekly jobless claims will also be reported.

There are also some earnings reports coming Thursday, namely from Oracle (ORCL ) after the market close, as well as National Semiconductor (NSM ) and Claire's Stores (CLE ).

In economic news Wednesday, the Commerce Dept. reported that the trade gap widened to a record $43.06 billion in January, more than the $42 billion that economists expected, and up from $42.69 billion in December. Exports fell 1.2% in the month, while imports fell 0.5%. According to Standard & Poor's MarketScope, the further drop in exports was a large factor in the January decline and is "most troubling", as exports have fallen for two consecutive months.

In a separate report, January wholesale inventories rose 0.1%, while wholesale sales rose 0.6%.

Among stocks in the news Wednesday, Procter & Gamble rose after the company raised guidance. The consumer products giant says third quarter and fiscal year 2004 earnings per share should exceed the current consensus estimates by 1 to 2 cents on strong volume and sales performance. It set a 2-for-1 stock split, and raised its annual dividend by 9.9%.

Krispy Kreme Doughnuts (KKD ) reported fourth-quarter EPS of 26 cents, vs. 19 cents a year ago (excluding a $9.1 million arbitration award), on 11% same-store sales rise and 36% total revenue rise. It maintains $1.16 to $1.18 fiscal 2005 EPS guidance, and same-store sales growth guidance of mid-to-high single digits. The shares fell.

Women's apparel retailer AnnTaylor Stores (ANN ) reported fourth-quarter EPS of 65 cents, vs. 35 cents a year ago, on 16% higher same-store sales and 27% total sales rise. The apparel chain says it is comfortable with EPS guidance of 47 cents to 49 cents for the first-quarter and $2.47 to $2.57 for fiscal 2005. It increased its $50 million share buyback to $75 million. CIBC World raised its price target for the stock. The stock was lower on Wednesday.

Shares of competitor Talbots (TLB ) also fell after the company reported fourth-quarter results on a 4.7% same-store sales decline and flat net sales growth.

Global Crossing (GLBC ) shares plunged almost 39%, to $17.65, after the company reported fourth-quarter EBITDA of $13 million as lower access cost, consolidated third party maintenance costs, and operating expenses offset a 6% total revenue decline.

Treasury Market

Treasuries ended slightly lower in price Wednesday, with the yield on the benchmark 10-year note settling at 3.73%, after investors took in the implications of the record trade deficit. The 5-year note auction results were mediocre, notes Informa Global Markets. A stronger U.S. dollar didn't help.

World Markets

European stock markets finished mixed on Wednesday.

London's Financial Times-Stock Exchange 100 index was up 3.3 points, or 0.07%, to 4,545.3, with the U.S. equity market little changed at the time of the close. Heavyweights Royal Bank of Scotland, Anglo American, and Rio Tinto traded ex-dividend Wednesday, wiping 8 points off the FTSE index.

Germany's DAX index lost 42.85 points, or 1.05%, to 4,044.7 German shares remained under pressure in line with a mixed to lower performance on Wall Street. DIW economists cut German growth forecasts. Degussa and Volkswagen personnel cuts suggest that the German jobless rate might increase in coming months. Deutsche Telekom, RWE, and Metro stocks were lower.

In Paris, the CAC 40 gained 21.06 points, or 0.56%, to 3,758.09. In stocks news, Accor declined to comment on renewed speculation it could make a friendly offer for Club Med. Alstom plunged after forecasting higher restructuring costs and warning fiscal 2003-2004 operating margin will be slightly below 2% to 2.5% foreseen in November.

Asian markets finished lower on Wednesday. In Japan, the Nikkei 225 index Lost 98.8 points, or 0.86%, to close at 11,433.24. Japan's economy grew a real 1.6% in the October-December quarter from the previous quarter, revised down from the initially reported 1.7% expansion, the government said Wednesday. That brought stocks lower at the close. Computer-linked companies led the laggards after the Nasdaq fell overnight and erased gains for the year. Compounding the bearish mood was news that Canon cut its sales forecast because of competition amid a stronger Japanese yen.

In Hong Kong, the Hang Seng index fell 183.05 points, or 1.37%, to close at 13,214.2. The top index percentage loser was Wheelock (-5.2%), followed by China Unicom (-4.8%). Cathay Pacific (-1.8%) stayed weak after it posted a 67.3% year-over-year drop in its fiscal year 2003 net profit. On the upside, utilities HK Electric and CLP went up as investors switched funds to defensive counters.

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