Stocks End Slightly Higher

The major indexes had trouble advancing amid a weak reading on retail sales, earnings warnings, and higher oil prices

Stocks finished with small gains Tuesday amid some weak economic reports and earnings warnings. In addition, oil prices continued to climb as Hurricane Ivan entered the Gulf of Mexico and disrupted oil operations.

The Dow Jones industrial average rose 3.4 points, or 0.03%, to 10,318.16. The broader Standard & Poor's 500 index was up 2.51 points, or 0.22%, to 1,128.33. The Nasdaq composite index added 5.02 points, or 0.26%, to 1,915.4.

Some of Tuesday's trading activity was likely related to quarterly expiration of futures and options, notes Standard & Poor's MarketScope. Internet stocks moved higher, after three days of gains. Gold stocks were boosted by drop in the dollar as the second-quarter current account deficit came in above forecasts.

Looking ahead to Wednesday, investors will take in the latest earnings report from Oracle (ORCL ), which was released after the close of trading Tuesday. Oracle announced first quarter earnings per share of 10 cents, vs. 8 cents one year earlier, a penny above the Wall Street consensus estimate. The database software outfit said revenues rose 7%, citing continued growth of its Oracle 10g product. The shares rose in after-hours trading.

Best Buy (BBY ) will report quarterly results on Wednesday.

A few economic reports will be released Wednesday, including the Empire State index, business inventories, and industrial production and capacity utilization.

In economic news Tuesday, U.S. retail sales fell 0.3% in August, vs. an expected 0.1% decline, after a revised 0.8% rise in July (from up 0.7% previously). Excluding autos, sales were up 0.2% after a revised 0.3% gain in July. The overall figure is a little weaker than expected, but the ex-auto number is spot-on, says Action Economics. Weakness was in vehicles (-1.9%), as expected, and clothing (-1.4%).

The second-quarter current account deficit widened out to $166.2 billion, a new record, from a revised $147.2 billion in the first quarter ($144.9 billion previously). The data are weaker than the market was expecting. This should weigh on the dollar fairly significantly, says Action Economics.

On Tuesday, Internet software stocks headed higher on news that Yahoo! (YHOO ) agreed to acquire Musicmatch for $160 million in cash. Standard & Poor's believes the deal would substantially augment Yahoo's reach and services in the music category.

McDonald's (MCD ) shares rose after the fast food company announced a 38% increase in its annual dividend, from 40 cents per share to 55 cents per share.

However, a few stocks fell after companies issued earnings warnings. LSI Logic (LSI ) says that based on customer reassessment of end-demand for the second half of the year, it lowered $435 million to $465 million third-quarter revenue guidance to $370 million to $400 million, and breakeven to 3 cents third-quarter loss (GAAP basis) to a 14 cents to 17 loss per share. Wachovia downgraded the stock to market perform from outperform.

Office Depot (ODP ) cut its third-quarter EPS guidance to a range of 26 cents to 28 cents, and 2004 to $1.08 to $1.14. The retailer cited the recent hurricanes, and said it does not expect to recover the shortfall during the fourth quarter and sees additional risks because of lowered sales outlook for the balance of the year.

Cardinal Health (CAH ) says it expects a 25% first-quarter EPS decline and 10% to 15% first half decline, citing model transition in pharmaceutical distribution business. It delayed the filing of its 10-K for fiscal year 2004, and filed an 8-K with the SEC providing information regarding the effect on its expected restatement.

Pier 1 Imports (PIR ) posted second-quarter EPS of 12 cents, vs. 20 cents a year ago, on 3% same-store sales drop and 5.7% total sales rise. The retailer sees third-quarter same-store sales of negative 4% to flat, and 28 cents to 35 cents EPS.

Kroger (KR ) reported second-quarter EPS of 19 cents, vs. 25 cents a year ago, despite a 2.1% rise in same food store sales (including fuel). The company says it will be challenging to achieve fiscal year 2005 same food-store sales. The shares fell.

Shares of Progressive (PGR ) shot up after the insurer posted higher quarterly earnings on a solid increase in net premiums written. The company also said it will purchase up to 17.1 million of its shares.

Treasury Market

Treasury prices finished higher after damp headline retail sales in August were mitigated by a decent ex-autos gain, highlighting expectations of the impact of weak auto sales on the month, says Action Economics. However, a series of Fedwatcher reports all concluded that the Federal Reserve is likely to pause from its tightening program at the end of the year, sending yields lower into the close, says Action Economics. The 10-year note yield eased back to around 4.13%.

World Markets

European stock markets finished lower on Tuesday. London's Financial Times-Stock Exchange 100 index was down 12.9 points, or 0.28%, to 4,545.6 as Britain's August CPI rose 0.3% after falling 0.3% in July. The August rise was less than the consensus 0.4% estimate.

Germany's DAX index fell 5.56 points, or 0.14%, to 3,947.75 as the German September ZEW economic sentiment index fell to 38.40 from 45.3 in August. It was worse than the 45.0 that economists expected.

In Paris, the CAC 40 index lost 17.37 points, or 0.47%, to 3,708.03 as the Bank of France forecasts third-quarter growth at 0.6%, softer than the 0.8% expansion seen in both the first and second quarters. Also, a monthly survey of manufacturers showed business confidence fell to 104 in July from 106 in June. In Asia, the markets finished higher on Tuesday. Japan's Nikkei 225 index gained 42.47 points, or 0.38%, to close at 11,295.58 as tech stocks extended gains. Advantest rose 1.13%, while Tokyo Electron surged almost 3%.

In Hong Kong, the Hang Seng index rose 8.49 points, or 0.06%, to close at 13,148.06.

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