Double Trouble Hits Stocks

Rising bond yields and high oil prices discourage investors again.
By Robert Holmes ,

Updated from 3:10 p.m. EST

Stocks closed lower for the day and the week Friday, as higher bond yields and oil prices knocked the major indices from the near four-year highs they touched just a week ago.

The

Dow Jones Industrial Average

closed down 77.15 points, or 0.7%, to 10,774.36, putting it lower for the year again; the

S&P 500

fell 9.17 points, or 0.8%, to 1200.08; and the

Nasdaq

was down 18.12, or 0.9%, to 2041.60. For the week, the Dow was off 1.5%, the S&P 500 was down 1.8% and the Nasdaq shed 1.4%.

Closing volume on the

New York Stock Exchange

was 1.45 billion shares, with decliners beating advancers by a ratio of 10-to-7. Volume on the Nasdaq was 1.77 billion shares, with decliners narrowly outpacing advancers about 9-to-7.

In other markets, the 10-year Treasury note was down 20/32 in price to yield 4.54%, a level not reached in eight months, as its weeklong slide continued. The dollar was weaker against the yen and euro.

"I think the principal offender today is higher interest rates," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "We're looking at a 10-year bond above prior resistance and heading toward upward targets above 4.60%. The tone of the market has appeared to change as investors are increasingly concerned about higher commodities and inflation, given that oil prices are hovering around $55. The Fed may have to become more aggressive in order to take liquidity out of the system. As a result, the market is struggling."

Intel fell 2.6% despite saying late Thursday that it expects first-quarter sales to be between $9.2 billion and $9.4 billion. That's up from its previous range of $8.8 billion to $9.4 billion, and it implies a midpoint above the Thomson First Call consensus of $9.15 billion. Shares lost 65 cents to finish at $24.20.

Intel's slide led to a 2.9% decline in the Philadelphia Stock Exchange Semiconductor Index, which had risen about 15% since a late January trough. Friday's decline retraces gains made after solid earnings news this week from

Xilinx

(XLNX) - Get Report

,

Altera

(ALTR) - Get Report

and

National Semiconductor

(NSM)

.

Other weak sectors Friday included drugs, retail, utility and airlines, led by a dip in

Delta Air Lines

(DAL) - Get Report

. Stronger sectors included materials, energy, steel and homebuilding.

Oil erased an early decline, following a selloff yesterday. The April crude contract closed up 89 cents to $54.43 a barrel in Nymex trading. An International Energy Agency report showed that worldwide oil demand is trending higher than previously believed.

The Commerce Department said January's trade balance widened to a deficit of $58.3 billion. The consensus forecast was for a deficit of $56.8 billion vs. $56.4 billion in the previous month. Imports rose 1.9% to a record $159.1 billion, while exports gained 0.4% to a record $100.8 billion.

"The trade numbers this morning were a dominant depressant," said Joe Liro, equity strategist with Stone & McCarthy Research Associates. "The composition of the numbers was not good for the economy as far as export growth. This has an effect on the dollar, which, of course, can affect oil prices."

The Dow ended lower despite a rally in steel stocks that greeted raised earnings guidance from the nation's biggest producer,

Nucor

(NUE) - Get Report

. Nucor put first-quarter earnings at $1.95 to $2.15 a share, up from its previous range of $1.70 to $1.90 a share, and said the second and third quarters also will be strong. Shares added $4.90, or 8.5%, to $62.55.

"The trade deficit gave the impetus for the bond market to sell off," said Jay Suskind, head of institutional equity trading with Ryan Beck & Co. "The velocity of higher interest rates is causing headwinds. Uncertainty over bonds and equities is causing a small selloff, even after Intel had news out we thought would move the market higher."

Kmart

(KMRT)

finished sharply higher Friday after an analyst at UBS raised the shares to buy and set a $160 price target. He cited expectations for $5 billion in cash-flow generation from cost savings and cross-selling advantages following its merger with

Sears

(S) - Get Report

. Kmart was up $14.89, or 13.3%, to $127. Sears, which UBS also upgraded to buy, added $4.20, or 7.9%, to $57.56.

According to

The Wall Street Journal

, the

Securities and Exchange Commission

plans to bring civil charges against Joe Nacchio, the former CEO of

Qwest

(Q)

, for his alleged role in accounting fraud at the telecom giant. About a dozen other Qwest executives will be charged, the story said. Qwest added 1 cent, or 0.3%, to $3.85.

TiVo

(TIVO) - Get Report

reported a fourth-quarter net loss of $33.7 million, or 42 cents a share vs. a loss of $12.4 million, or 18 cents a share, a year earlier. Analysts expected a loss of 43 cents, according to Thomson First Call. Looking ahead, the company said it expects a 2005 loss of $10 million to $25 million, on revenue of $155 million to $165 million. Brokerage Sun Trust Robinson Humphrey downgraded TiVo to neutral from buy on the company's report. Shares lost 56 cents, or 12.9%, to close at $3.78.

Women's clothing retailer

J. Jill Group

(JILL) - Get Report

reported fourth-quarter net income of $2.6 million, or 13 cents a share. Sales rose 4% from the year-ago quarter to $119.4 million. Analysts were expecting earnings of 11 cents a share on sales of $119 million, according to the Thomson First Call consensus average. Looking ahead, the company said it expects a loss of 25 cents to 28 cents on sales of $91 million to $93 million in the first quarter. Analysts see a loss of 10 cents a share on $108 million in sales. Shares fell on the lower guidance, down $1.17, or 8.4%, to finish at $12.68.

eResearchTechnology

(ERES)

cut its revenue target during its midquarter update due to slow starts of clinical trials and the timing of closing contracts. The heartbeat-monitoring technology company expects revenue in the first quarter to be 12% to 18% below the low end of the previous range. In February, the company forecast first-quarter revenue of $26 million to $28 million. Shares dropped $2.23, or 16.2%, to $11.53.

Edison International

(EIX) - Get Report

posted a rise in fourth-quarter earnings to $379 million, or $1.16 a share, from $197 million, or 60 cents a share, a year earlier. Edison benefited from the resolution of regulatory and tax issues. Excluding items, the utility company earned 42 cents a share, beating the Thomson First Call consensus estimate of 22 cents a share. Revenue increased to $2.33 billion from $2.24 billion a year ago. Shares were down 33 cents, or 1%, to close at $33.57.

Overseas markets were uniformly higher, with London's FTSE 100 finishing up 0.4% to 4981 and Germany's Xetra DAX adding 0.5% to 4360. In Asia, Japan's Nikkei rose 0.5% overnight to 11,924, while Hong Kong's Hang Seng added 0.3% to 13,891.

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