Recovery Hopes Fail to Spark Stocks

Updated from 4 p.m. EST

Stocks closed lower Thursday despite upbeat economic reports and more positive comments from Federal Reserve Chairman Alan Greenspan.

The Dow Jones Industrial Average lost 49 points, or 0.5%, to 10,525. The Nasdaq ended down 9 points, or 0.5%, at 1882, and the S&P 500 was off 5 points, or 0.5%, at 1158.

The Labor Department said initial jobless claims fell to 376,000 in the week ended Saturday from 381,000 in the previous week. The drop in Americans claiming first-time unemployment marks the fourth decline in five weeks. The government also reported that fourth-quarter productivity was up a stronger-than-expected 5.2%.

Alan Greenspan told the Senate Banking Committee that recent economic data is proof that an economic recovery is well under way. While his comments failed to energize equities, U.S. Treasuries were soundly punished as investors began to fret that the Fed might consider raising interest rates later this year if the economy starts expanding. At 4 p.m. EST the 10-year note was trading down 1 11/32 to 97 10/32, yielding 5.22%.

After four straight days in which the averages have swung wildly, investors were girded for more volatility. On the corporate side, the nation's retailers were in the news, with most of them reporting February sales. Gap (GPS Quote - Cramer on GPS - Stock Picks) posted a 17% decline in same-store sales last month and announced that it will close on a $1.2 billion convertible notes offering. Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks) reported better-than-expected same store sales growth of 10.3% in February.

Hewlett-Packard (HWP Quote - Cramer on HWP - Stock Picks) and Compaq (CPQ Quote - Cramer on CPQ - Stock Picks) were hovering around the flatline after they cleared another hurdle on the way to their proposed merger. The Federal Trade Commission has now said it has no plans to block the deal, which is valued at more than $20 billion. Earlier this week a proxy advisory firm recommended that shareholders vote for the merger.

Conseco (CNC Quote - Cramer on CNC - Stock Picks) was coming off its session lows after the company said it fired its chief financial officer because he wasn't "up to the job." Earlier in the day the stock faced heavy selling pressure after a Merrill Lynch analyst put a sell rating on the insurance firm. On Tuesday, Conseco said financial chief Chuck Chokel was leaving the company to pursue other interests but didn't provide any details. The stock closed down 4.3% to $3.59, having traded as low as $2.50.

National Semiconductor (NSM Quote - Cramer on NSM - Stock Picks) kept hope alive for the chip sector by saying that revenue was growing after a worldwide sales slowdown. The company also posted a third-quarter loss of 21 cents a share, beating analysts' expectations. The stock added 4.3% to close at $32.96. The Philadelphia Stock Exchange Semiconductor Index shed 0.5%.

Two drug companies and a medical device maker reported product setbacks on Thursday. Biotech concerns Sepracor (SEPR Quote - Cramer on SEPR - Stock Picks) and Celgene (CELG Quote - Cramer on CELG - Stock Picks) both saw drugs run into trouble with the FDA. Guidant (GDT Quote - Cramer on GDT - Stock Picks) halted trials of an artery stent, after a study found out that it's not effective in preventing re-clogging of the arteries. Sepracor was the biggest Nasdaq loser, falling 28% to $19.64. Celgene lost 16.8%, and Guidant drpped 4.3%. The American Stock Exchange Biotechnology Index was lower by 1.4%.

Shares of Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) were slipping following news Wednesday evening that the broker may sell convertible bonds. The stock lost nearly 3% to $52.79, and financials on the whole were slightly lower.

Stocks were uniformly higher overseas, with London's FTSE 100 rising 0.7% to 5282 and Germany's Xetra DAX fractionally higher at 5289. In Asia, Japan's Nikkei rose 2.6% to 11,648 and Hong Kong's Hang Seng rose 1.7% to 11,188. The Nikkei's strength sent the yen to its highest level against the dollar in seven months.