Updated from 3:47 p.m. EDT
New York's blue-chip indices closed in shallow negative territory Wednesday as the effects of relatively positive economic data gave way to prevailing troubles in the financial sector, though tech shares managed to hang on to their gains.
Dow Jones Industrial Average
spent most of the day higher but finished down 12 points to 12,390 amid late pressure from
, and the
slipped a half-point at 1377. The
, however, ended up 23 points at 2503.
The moves came after the ADP employment report showed that nonfarm private U.S. jobs
in May, markedly better than the average economists' consensus for a 30,000 drop. The report noted, however, that this "nevertheless suggests continued weakness in unemployment" as manufacturing employment, in particular, saw its 21st consecutive monthly decline. Last month's data was revised up to 13,000 added positions.
The Real Story Wrap: June 4
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On Friday, the Labor Department will put out its official numbers, and the two reports often differ.
"This is something of a surprise and, other things equal, it increases the chance that Friday's official payroll number will beat the current
minus 60,000 consensus," wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics. But he pointed out that ADP has overstated payrolls for the past nine months, with an average error of 71,000, and said that "most of the labor market indicators we follow are consistent with clear declines in payrolls."
"But with such volatile data, in any given month, anything can happen," he said.
Also, the Institute for Supply Management said the non-manufacturing sector showed another expansion last month, with its ISM Services Index coming in at 51.7 -- just over the break-even point of 50. That's slightly lower than April's 52 reading, but economists were looking for a decline to 51.
Elsewhere on the economic docket, the government bumped its nonfarm productivity numbers up to 2.6% from the preliminary figure of 2.2%. That was slightly better than expected. Unit labor costs, however, climbed at a greater-than-anticipated rate of 2.2%.
The market meanwhile worked past a number of sour news items out of the financials, which have been showing signs of disarray after having stayed fairly under the radar for the past few months.
For instance, in a blast from the recent past, shares of
were taking an afternoon thrashing after Moody's Investors Service said it's reviewing their AAA insurance financial strength ratings and
may downgrade the ratings
. Shares of MBIA sank 15.6%, and Ambac tumbled 17%.
Also, this morning a Merrill Lynch analyst said that
will probably see cumulative losses rising to between $10 billion and $12 billion as home prices keep dwindling. That, said the analyst, should translate into ever more worries for
Bank of America
, which agreed to buy Countrywide a few months ago. The analyst, who also noted BofA has high exposure to consumers, cut BofA's price target by $1 to $27. BofA, a Dow component, dipped 2.1%.
The Wall Street Journal
has reached out to overseas investors this week for new capital, including one in South Korea. On Tuesday, the paper reported that Lehman was looking to raise $3 billion to $4 billion in order to shore up its ailing balance sheet, and the broad market closed lower in response as Lehman itself took a plunge.
report said Lehman had
bought back "large amounts" of its own shares
this week, and Merrill Lynch has furthermore upgraded the stock. Shares began in the red but were recently higher by 2.4%.
All in all, Robert Pavlik, chief investment officer with Oaktree Asset Management, doesn't make much of these resurfacing financial-space problems.
"While the recent market weakness is disconcerting," he wrote, "I view the news related to the financial sector as a temporary concern and one that will soon be knocked off its headline position by another unknown issue which captures the market's short attention span."
Away from financial firms,
chairman Ben Bernanke said the U.S. inflation rate, at 3.5% over the past four quarters, is "significantly higher than we would like but much less than the double-digit rates that inflation reached in the mid-1970s and then in 1980." He also said that some indicators of longer-term inflation expectations have risen in recent months, a "significant concern" for the Fed that must be monitored "closely."
He also noted that crude oil has surged fourfold since 2003, "proportionally about as much as in the 1970s," and that the effects have been "painful." But he also added that the central bank sees few signs of a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward."
Back in companies,
President Sue Decker said at a New York advertising conference that talks with
were still ongoing weeks after the Internet-portal operator turned down the software giant's sweetened takeout bid. Yahoo! shares added 2.6%.
Last month, Microsoft announced that it was working on another deal with Yahoo! that didn't include an outright acquisition, but the company nonetheless left that possibility open. Billionaire investor Carl Icahn, who has taken a sizable stake in the company, said Yahoo! acted "irrationally" in rejecting Microsoft's overtures, has lined up 10 people to replace current directors, and reportedly aims to oust CEO Jerry Yang if he succeeds in the proxy battle.
Staying in the tech space,
reported that Verizon is in talks to pay $27 billion for Alltel, which was just taken private about six months ago by TPG and
. Verizon shares reversed course to lose 1.6%.
Elsewhere, United Airlines operator
flew 6.7% higher after saying it will remove 100 aircraft from its mainline fleet and that it expects to fire up to 1,600 employees by year-end, including a previously announced cut of 500 workers.
announced it will buy out
Procter & Gamble's
Folgers coffee business for some $2.95 billion in stock and $350 million in assumed debt. Smucker shares were down fractionally, and Procter was ticking up 1.3%.
After the last market close, clothing purveyor
said its fiscal first-quarter profit soared 35% from a year earlier thanks to its international exposure, enough to top reet's expectations. The company also lifted its full-year guidance for both earnings and sales. Shares were leaping 13.3%.
Staying in earnings, homebuilder
lost 9.1% after its second-quarter loss widened sharply to $340.7 million, or $5.29 a share, from 49 cents a share last year. The firm blamed a "persistently challenging market environment."
reported a 42% income drop to $10.4 million, or a dime a share, and sharply lowered its same-store sales forecast. The company beat analyst targets in the first quarter, but the stock was still losing 3.8%.
Returning to analyst research, Wachovia upped both
to outperform. Drugmakers
each got an upgrade at Cowen & Co.
Cowen also lowered
to neutral from outperform, however, and hotel chain
got cut to perform from outperform at Oppenheimer.
Among commodities, crude oil lost $2.01 to $122.20 a barrel, and gold was down $1.70 at $883.80 an ounce. The U.S. dollar rose 0.1% against the euro to $1.5446 and firmed by 0.2% against the yen to fetch 105.04.
Treasury prices were backing off from early gains. The 10-year note shed 17/32 in price to yield 3.96%, and the 30-year bond dove 1-4/32 in price, yielding 4.70%.
Most markets abroad were weaker. In Asia, the Tokyo's Nikkei 225 surged 1.6% overnight, but Hong Kong's Hang Seng Index lost 1%. As for Europe, the FTSE 100 sank 1.5%, and Germany's Xetra Dax was off 0.8%. The Paris Cac gave up 1.4%.