Stocks Finish Sharply Lower

Investors sold shares as Israel's killing of a Hamas leader and election protests in Taiwan raised geopolitical concerns

Stocks finished deep in the red on Monday as investors lost their appetite for equities after Israel's killing of the spiritual leader of the Palestinian Islamic group Hamas raised concerns about an upturn in terrorist activity.

The Dow Jones industrial average lost 121.9 points, or 1.2%, to 10,064.75. The broader Standard & Poor's 500-stock index declined 14.34 points, or 1.29%, to 1,095.44. The Nasdaq composite index shed 30.56 points, or 1.57%, to 1,909.91.

Economic research group Informa Global Markets says market losses were broad-based, with few places to hide. Financials were hard-hit despite bonds yields dipping slightly. Airlines stocks were weak, and tech shares were broadly lower. However, some gold stocks rose with the price of the metal, while oil and drug stocks also gained ground.

Nearly 1.45 billion shares traded hands on the New York Stock Exchange, while volume on the Nasdaq was 1.98 billion shares. "This marks another clear distribution day of big funds cutting exposure on heavier flows in an effort to protect first-quarter performance returns," says Informa. It notes that the Nasdaq has now corrected more than 10% from its January highs, with contrary market "fear" gauges finally moving into an oversold posture for the near term.

Early Monday, the spiritual leader of the Palestinian group Hamas, Sheik Ahmed Yassin, was killed by missiles fired from Israeli helicopters as he left dawn prayers at a mosque in Gaza, according to news reports. Palestinians reacted with calls for revenge, while Israeli officials said they plan to keep their new campaign against Palestinian militants, sparking concerns of more violence to come.

Political uncertainty was not limited to the Middle East. The Taiwan stock market plunged 7% Monday following large protests over the results of that nation's bitterly contested Presidential election.

Back on Wall Street, Wal-Mart Stores (WMT ), the world's largest retailer, said it still sees hitting the high end of its forecast for a 4% to 6% rise in March sales at stores open at least a year.

Walgreen (WAG ), the largest U.S. drugstore chain, posted 17% higher quarterly profit on strong demand for prescription drugs.

Carnival (CCL ) the world's largest cruise operator, posted a big jump in quarterly profits as bookings and prices rebounded from the lows in early 2003 as the war in Iraq got under way.

Aerospace outfit Boeing (BA ) was downgraded to neutral from outperform by investment bank Credit Suisse First Boston. The move hurt the Dow component.

Taiwan Semiconductor (TSM ) traded lower on huge volume of almost 16 million shares. The company says it may cut spending by as much as half next year due to slower sales growth. The drop in the stock was also tied to the contested presidential election in Taiwan, says Standard & Poor's MarketScope.

The economic calendar is light until Wednesday, when traders will get word on durable goods orders, and new home sales.

Companies scheduled to report earnings results on Tuesday include Goldman Sachs (GS ), Family Dollar Stores (FDO ), McCormick & Co. (MKC ), and Red Hat (RHAT ).

Treasury Market

Treasury prices grinded higher for much of the session, pushing the yield on the benchmark 10-year note down to 3.71%. An underlining bid was hard to shake in light of the heated geopolitical situation, says economic research outfit Informa Global Markets. The other moving force was a round of long-dated corporate supply. Ailing global stocks were also a plus for Treasuries.

While asset reallocation trades from balanced funds were suspected, trades were not confirmed until late in the session, which drove Treasuries to the highs of the session, says Informa. Technical buyers were forced in which drove up the volume and prices to the highs into the close.

World Markets

European stock markets ended lower on Monday. London's Financial Times-Stock Exchange 100 index was off 83.90 points, or 1.90%, to 4,333.80 on worries that the Israeli assassination of Hamas founder will escalate terrorist activities in Middle East and the rest of world. Some 99 FTSE stocks were lower and 2 were higher on turnover of 707 million shares. British Airways was down on Middle East worries. Medisys was higher on plans to sell diabetes devices in the U.S.

In Paris, the CAC 40 lost 74.06 points, or 2.05%, to 3,539.22 after Chirac and the Raffarin government lost ground to socialists and far right in weekend regional elections. The political loss will make it difficult to cut government spending. Some 39 CAC stocks were down and 1 was higher on turnover of 37 million shares. Cap Gemini, Thomson, and Total stocks were among the stocks moving lower on the session. Germany's DAX index was down 89.92 points, or 2.35%, to 3,729.23 on worries the the Middle East violence will escalate on killing of Hamas founder. Some 29 DAX stocks were down and 1 was up on turnover of 64 million shares. The Finance Ministry stated higher exports have not supported a pickup in consumer demand. Bayer AG was lower on plans to sell 4 billion euros in option and exchangeable bonds. Infineon Technologies was down on worries about Taiwan's political problems.

In Asia, the equity markets finished lower. The Nikkei 225 index fell 100 points, or 0.88%, to 11,318.51 amid heavy selling in domestic stocks, such as retailers, real estate, tech, and non-bank financial stocks. Sentiment was hurt by the post-election turmoil in Taiwan and a front-page report in Hong Kong's South China Morning Post that Beijing put the People's Liberation Army on combat alert, ready to attack Taiwan if the political crisis worsens.

In Hong Kong, the Hang Seng index slid 239.67 points, or 1.87%, to 12,550.91.

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