Wall Street pulls back on retail sales reports, profit-taking

AP Business WriterNEW YORK (AP) -- Wall Street's efforts to extend its rally fizzled Thursday after mixed retail reports persuaded investors to play it safe and cash in their gains.

Stocks fell sharply, although the major indexes preserved more than half of Wednesday's significant gains. A retreat following a big advance is not unusual, but analysts said the declines showed that buyers still lack faith that the business recovery will be strong enough to support higher stock prices.

"By and large, this bull is looking like a one-trick pony," said Bryan Piskoroswki, market commentator at Prudential Securities, referring to Wednesday's rally. "We didn't give it all back, but sustainability and follow-through are still big problems for this market."

The Dow Jones industrial average closed down 104.41, or 1.0 percent, at 10,037.42, pulling back from its 305-point gain Wednesday.

Broader stock indicators also fell back. The Nasdaq composite index lost 45.80, or 2.7 percent, to 1,650.49. The Standard & Poor's 500 index dropped 15.84, or 1.5 percent, to 1,073.01. On Wednesday, the Nasdaq soared 122 points, while the S&P gained 39.

A slew of mostly unimpressive retail sales reports started the session on a negative note. Consumer spending accounts for two-thirds of the economy, and retail sales are considered one indicator of its strength.

Wal-Mart fell $1.40 to $54.99 and Target lost $2.29 to $42.03 after reporting weaker-than-expected April sales at stores open at least a year. But the Gap rose $1.08 to $15.79 on a smaller-than-expected sales decrease.

Reports of anthrax in the mail at the Federal Reserve further unnerved the market, although authorities said more tests would have to be done to confirm the finding.

Tech stocks were also weak. Cisco Systems, whose stronger-than-expected profits triggered the rally, slipped 52 cents to $15.75 -- cutting into its 24 percent gain Wednesday.

And WorldCom fell 14 cents to $2.01 after Moody's Investors Service downgraded the telecom company's debt to junk status.

Among blue chips, brokerage firms pulled back on a UBS Warburg research note questioning the health of their business. Merrill Lynch dropped $1.04 to $42.91, a day after rising 8 percent on hopes it was about to settle a conflict-of-interest case with the state of New York.

Profit-taking usually follows big run-ups, but analysts said investors Thursday appeared to be returning to their old pattern of selling rather than risking more disappointments.

Weeks of lackluster first-quarter results and most companies' inability to predict stronger quarters have made selling more attractive than buying. Although Cisco's news was enough for one rally, analysts say one company alone cannot spark the longer-term buying needed for a true turnaround. They also note that Wednesday's gains were really more of a rebound since stocks have fallen so much.

"It's constructive that we haven't fully reversed all the moves from Wednesday, but confidence generally remains shattered in the market," said Tom Galvin, chief investment officer at Credit Suisse First Boston. "I think we really need to get data on the job picture, better profits and the stability in consumer spending and less global tension before investors really start to commit again."

The Nasdaq has fallen 15.4 percent from where it started 2002; the S&P is off 6.5 percent and the Dow is up 0.2 percent.

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Volume came to 1.14 billion shares, well below the 1.5 billion shares reported Wednesday.

The Russell 2000 index fell 8.37, or 1.6 percent, to 501.38.

Overseas, Japan's Nikkei stock average rose almost 1.0 percent. In Europe, Germany's DAX index fell 1.2 percent, Britain's FTSE 100 dropped 0.2 percent, and France's CAC-40 lost 0.4 percent.

------

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com