Accounting worries drag stocks lower

Tuesday, July 2, 2002

AP Business WriterNEW YORK (AP) -- Persistent worries about corporate accounting scandals sent stock prices sharply lower again Tuesday as a new probe into the books of Worldcom worsened an already dismal climate of distrust in corporate America.

The declines extended Wall Street's more than six-week-long losing streak and marked another five-year low for the technology-focused Nasdaq composite index, which fell through its post-Sept. 11 low close on Monday. The Standard & Poor's 500 index also dropped below its post-terror attack closing low, and to a level not seen since late 1997.

The disclosure on Monday from WorldCom, the embattled telecommunications company, that it was investigating further accounting irregularities provided the latest impetus for investors to dump shares in disgust, particularly in the technology sector.

WorldCom, which is already facing fraud charges for covering up nearly $4 billion in expenses last year and early in 2002, now says it is looking into problems with its reserve accounts.

According to preliminary calculations, the Nasdaq composite index fell 45.95 or 3.3 percent to close at 1,357.85, after falling 4.1 percent on Monday. It was the lowest close for the index since May 19, 1997.

Market watchers described the declines as an emotional response to a seemingly relentless string of disclosures of questionable bookkeeping in recent months that have badly shaken confidence in the stock market.

"It seems like an acceleration of bad news these days," said Brian Bruce, director of global investments at PanAgora Asset Management in Boston. "People are just focusing on every bit of bad news that comes out now. This is clearly the flip side of the bubble mentality -- people are looking for the next bad thing."

The Dow Jones industrial fell 102.04 or 1.1 percent to 9,007.75. The S&P 500 was down 20.56 or 2.1 percent at 948.09, dropping below its post-Sept. 11 low and at its lowest close since it reached 936.46 on Dec. 26, 1997.

Stock indicators have been on an almost uninterrupted slide since the middle of May as a wave of disclosures about questionable accounting practices at several major U.S. firms badly damaged investor sentiment, which was already shaken by the collapse of energy giant Enron.

Investors said the market is still testing how badly confidence in U.S. companies has been damaged by accounting problems at Global Crossing and the cable TV company Adelphia Communications and the arrest of the former CEO of drugmaker ImClone Systems.

"I think it runs deeper than most people are willing to admit," said Alan Ackerman, executive vice president at Fahnestock & Co. "The question is whether we have a crisis of confidence or a contraction of confidence. Judging from the fact that the market is hardly acting as a magnet for money right now, I think it's fair to say that it could trade lower still."

The bad news about corporate accounting continued to mount Tuesday as the French newspaper Le Monde reported that Vivendi Universal sought to pad its 2001 records by 1.5 billion euros ($1.47 billion) related to its sale of its stake in the pay-television company BSkyB. The company said it followed appropriate accounting rules.

The report came as the embattled chairman of Vivendi Universal, Jean-Marie Messier, was forced out by his board. Messier had angered shareholders with a two-year buying binge that assembled a large but debt-ridden conglomerate comprising both media and water utility assets.

Investors were also eager to trim their exposure to ahead of the long Independence Day weekend. U.S. financial markets will be closed on Thursday and operate on an abbreviated schedule on Friday.

Declining issues outnumbered advancing ones by a 3-to-1 ratio on the New York Stock Exchange, where volume came to 1.7 billion shares, above the pace of 1.2 billion shares at the same time Monday.

The Russell 2000 index was off 14.89 or 3.3 percent at 432.84.

Overseas, Japan's Nikkei stock average rose 0.25 percent. Germany's DAX index was down 3.9 percent, Britain's FTSE 100 was down 3.0 percent, and France's CAC-40 was down 4.2 percent.

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