Stocks fall back on disappointing retail sales

AP Business WriterNEW YORK (AP) -- Weaker-than-expected retail sales gave investors another reason to take profits Wednesday, sending stocks sharply lower and the Dow Jones industrials down 130 points.

The selling spread across the market, with the technology sector hard hit by more downgrades based on worries the sector had become overvalued. Analysts said Wall Street was playing it safe, awaiting more indications that business is improving.

The Dow closed down 130.50, or 1.2 percent, at 10,501.85, according to preliminary calculations, its first decline in four sessions. It was also the Dow's lowest finish since March 5, just over a week ago, when the Dow closed at 10,433.41.

Broader stock indicators also fell. The tech-focused Nasdaq composite index lost 35.08, or 1.9 percent, to 1,862.04, while the Standard & Poor's 500 index dropped 11.49, or nearly 1.0 percent, to 1,154.09.

"The driving force of the market's recent rally had been the good economic news. So, we had a little bit of a setback today with the retailing news," said Larry Wachtel, market analyst at Prudential Securities. "But this is also just pullback after a big rally, which you need to get. If you don't pull back, you start to get into an area of irrational exuberance."

Investors were discouraged by a Commerce Department report showing February retail sales rose a smaller-than-expected 0.3 percent. Although numbers suggest that consumer spending, which accounts for two-thirds of the economy, is still relatively strong, they were not enough to cheer a market that had rallied strongly this month in anticipation of improving corporate profits.

Instead, the weak figures gave investors another excuse to collect their wins and hold off on any new buys.

Retail stocks fell broadly, with Wal-Mart losing 24 cents to $61.99. The Gap slid 11 cents to $13.95. Target dropped 74 cents to $43.74.

Tech stocks fell for a second session. Some pullback had been expected since the sector ran up considerably last week. But a series of research reports expressing concerns about the sector has intensified the selling pressure.

Investors bid Intel down $1.65 to $31.34 after J.P. Morgan lowered its estimates for the chipmaker. J.P. Morgan also expressed concern about rival AMD, which fell $1.45 to $14.30.

The selling echoed Wall Street's response Tuesday to sales warnings from Lucent and Nokia. On Wednesday, Lucent fell 68 cents to $4.83, while Nokia stumbled 20 cents to $21.89.

Pharmaceutical stocks fared better as investors looked for less risky bets. Investors bid Merck up 88 cents to $4.37.

Wednesday's selling was the strongest this week. Although the tech sector had pulled back Tuesday, the Dow had managed some tentative gains in earlier sessions. Analysts said investors were weighing their desire to see the market go higher against the need to preserve gains from this month's sizable advance in case they fizzled.

Hope is growing that the U.S. economy has emerged from a recession, but no one knows how strong the recovery will be. First-quarter earnings season, which starts next month, should provide some answers.

Until then, though, investors are likely to be thin-skinned about any news that suggests the economy or business is less rosy than hoped.

"The longer-term mood of the market is improving, but these short-term swings get people a little nervous," said Brian Belski, fundamental market strategist at US Bancorp Piper Jaffray.

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Volume came to 1.34 billion shares, compared with about 1.31 billion shares Tuesday.

The Russell 2000, the barometer of smaller company stocks, index lost 3.45, or 0.7 percent, to 495.45.

Overseas, Japan's Nikkei stock average fell 1.7 percent. In Europe, Germany's DAX index and France's CAC-40 each lost 0.6 percent, while Britain's FT-SE 100 rose 0.4 percent.

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