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Stocks Slump to Lower Close

The averages fall after reports of more subway incidents in London and currency revaluation in China.

Updated from 4:12 p.m. EDT

A new currency policy in China and more violence on the London transit system took Wall Street's attention away from earnings Thursday, and after struggling all session, stocks closed with losses.


Dow Jones Industrial Average

fell 61.38 points, or 0.57%, to 10,627.77. The

S&P 500

was lower by 8.16 points, or 0.66%, to 1227.04. The

Nasdaq Composite

lost 9.97 points, or 0.46%, to 2178.60. The 10-year Treasury slid 29/32 in price to yield 4.27%, while the dollar extended its losses against the yen and euro.

"Uncertainty caused by the Chinese yuan revalution led to profit-taking after the strong run-up in recent weeks," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "Generally speaking, the trend in earnings has been pretty positive, but with the market's overbought condition, equities were due for a pullback. From a longer-term perspective, it'll be a healthy development. The news out of London added more uncertainty to the equation.

About 1.66 billion shares changed hands on the

New York Stock Exchange

, while volume on the Nasdaq was 2.07 billion shares. Decliners outpaced advancers 2 to 1.

Trading had been volatile all day after four "explosions or attempts of explosions" created panic in the London subway system. Injuries have been limited, and Prime Minister Tony Blair told reporters that several of the bombs appear not to have exploded. The news roiled stocks globally just two weeks after more than 50 people died in four attacks around the city.

Meanwhile, in its first major change to currency policy in a decade, China announced Thursday that the yuan's value no longer will be determined solely by the dollar, but instead according to a basket of foreign currencies that could include the yen and euro. China will allow an immediate -- if tiny -- appreciation of its currency, and henceforth it let the yuan trade in a 0.3% band against the U.S. currency.


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was an emotional morning, with good earnings running with the revaluation of the yuan, running against possible incidents in London," said Peter Cardillo, chief market analyst with S.W. Bach & Co. "The revaluation is a long-term positive. It should certainly help the trade deficit, eventually strengthening the U.S. currency. It gives the Chinese more buying power. Earnings are pouring in and are better than expected."

The China news struck many analysts as more symbolic than economically significant, given the vague details.

"It's not clear about the size of the revaluation, or exactly what a basket peg means," said Drew Matus, senior economist with Lehman Brothers. "Because of that large uncertainty, it may not have an immediate impact on the economy or the market."

One immediate impact was felt in bond markets, where traders worried China might have fewer dollars to spend on U.S. Treasuries. Along with the decline in the 10-year note, 30-year bonds plunged in price, down 1 25/32 to yield 4.50%.

The impact on oil was less clear. A stronger yuan would make imports cheaper in China but could also cool the Chinese economy and push down demand. On the Nymex, September Brent crude fell 89 cents at $57.13.

Overseas markets finished mixed, with London's FTSE 100 down 0.1% at 5211 and Germany's Xetra DAX adding 0.9% to 4825. In Asia, Japan's Nikkei was little changed overnight at 11,787, while Hong Kong's Hang Seng rose 0.1% to 14,620.

At 1235 and 2188.5, the S&P 500 and Nasdaq began the day at their best levels since late 2001, gassed up Wednesday by a rally in the biotech sector and

Federal Reserve

Chairman Alan Greenspan's upbeat economic assessment. Greenspan repeated his remarks Thursday before the Senate.

Investors got no respite after the bell, with high-drama earnings reports from


(GOOG) - Get Alphabet Inc. Class C Report



(MSFT) - Get Microsoft Corporation Report


Google earned $342 million, or $1.19 a diluted share, in the second quarter. Total revenue rose 98% to $1.384 billion. Net revenue, or revenue excluding the fees from search-engine advertising partners, rose to $890 million. Analysts polled by Thomson First Call were looking for a GAAP profit of $1.09 a share and net revenue of $842.7 million. The stock was lower in extended trading after the company offered cautious comments on its third quarter.

Meanwhile, Microsoft posted a fourth-quarter profit of $3.70 billion, or 34 cents a share, compared with earnings of $2.69 billion, or 25 cents a share, a year ago. The Thomson First Call consensus was for EPS of 31 cents a share. The stock closed Thursday at $26.44, but was down 55 cents, or 2.1%, to $25.89 after hours.



(EBAY) - Get eBay Inc. Report

surged on a big second-quarter earnings beat, and


(NOK) - Get Nokia Oyj Report

was down on an earnings miss and soggy guidance.

eBay reported pro forma second-quarter earnings of $307.2 million, or 22 cents a share, beating Wall Street estimates by 4 cents on a 40% jump in revenue to $1.09 billion. The company put full-year pro forma earnings at 82 cents or 83 cents a share, up from previous guidance for 76 cents to 78 cents a share. eBay finished up $7.23, or 20.7%, to $42.10.

Nokia's second-quarter profit jumped 15% from a year ago to about $977 million on a 25% sales gain to about $9.83 billion. Per-share earnings were about a penny below Wall Street estimates, however, and the company warned that much of its second-half growth will be in emerging markets where it enjoys lower margins. The stock fell $2.08, or 11.7%, to $15.78.



third-quarter earnings rose 15% from last year to $560 million, or 33 cents a share, on a 1% rise in revenue to $1.36 billion. Adjusted earnings of 28 cents a share were 3 cents ahead of estimates. Qualcomm gained $2.92, or 8.1%, to $39.01.


(KO) - Get Coca-Cola Company Report

posted second-quarter earnings of $1.72 billion, or 72 cents a share, in its June quarter, compared with $1.58 billion, or 65 cents a share a year ago. Excluding a gain, the company beat estimates by 4 cents a share. Coca-Cola shares were up 62 cents, or 1.4%, to close at $43.95.



said second-quarter earnings jumped 16% to about $744 million, eclipsing estimates thanks to strength in Central Europe and Africa. The wireless-equipment company boosted its forecast for the year. Ericsson was higher by 36 cents, or 1.1%, to $34.68.


(MCD) - Get McDonald's Corporation Report

saw second-quarter net income fall to $530.4 million, or 42 cents a share, from a year ago, due to a tax charge for repatriating overseas profits. Excluding the charge, the company earned 51 cents a share, matching the Thomson First Call consensus. Revenue rose 8% to $5.1 billion. Same-store sales rose 2.8% for the quarter. Shares lost 12 cents, or 0.4%, to $30.78.


(MRK) - Get Merck & Co., Inc. Report

reported second-quarter earnings of $1.36 billion, or 62 cents a share, on revenue of $5.47 billion, matching Wall Street's expectations. The drugmaker also offered estimates for the third quarter and full year that were in line with the average consensus. Merck fell 47 cents, or 1.5%, to $31.38.

Eli Lilly

(LLY) - Get Eli Lilly and Company Report

posted a second-quarter loss of $252 million, or 23 cents a share, after a profit of $656.9 million, or 60 cents a share, a year ago. Excluding a one-time charge, earnings were 67 cents a share, matching the Thomson First Call consensus. The drugmaker also forecast third-quarter earnings in line with estimates. Eli Lilly was lower by $1.01, or 1.8%, to close at $56.25.


(VRSN) - Get VeriSign, Inc. Report

on Wednesday forecast current third-quarter revenue of $435 million to $440 million, below analysts' expectations of $459.4 million. The company said it anticipates EPS of 27 cents, in line with the Thomson First Call average estimate. The stock lost $4.53, or 15.6%, to $24.47.

The airline sector was suffering after the bombing reports in London.

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

, which reported a narrower second-quarter loss, dropped 9.2% to $3.55.


(JBLU) - Get JetBlue Airways Corporation Report

was down 7.6% to $21.07 despite posting a profit for the 18th straight quarter.

Northwest Airlines


was lower by 0.6% to $4.75, and

Continental Airlines

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lost 1.9% to $15.60.

Minutes from the Federal Open Market Committee's June 30 meeting did little to move markets. While some Fed members expressed concern about signs of longer-term price pressures, they agreed that "the appropriate pace and degree of cumulative policy adjustment would depend on economic developments going forward."

"The federal funds rate remained below the level members anticipated would prove necessary in the long run to contain inflation pressures and keep output near potential," the summary read. "However, the pace and extent of future policy moves would depend on incoming data. With policy still seen as accommodative, members agreed that the statement should retain an assessment that the risks to both sustainable economic growth and price stability were balanced, conditional on appropriate policy action."

"The minutes say that the likelihood of the Fed stopping in August is dwindling," said Hyman. "It's an indication of concern over inflationary pressures and housing market excitability still. The second half of the year with rates moving higher could be a different picture if the market continues higher."

Ian Shepherdson, chief economist with High Frequency, said "the inflation outlook is a key focus of debate within the Fed, with Mr. Greenspan in the hawkish camp, but open to debate on the quality of the key unit labor costs data. Finally, the committee decided that trying directly to suppress the house price boom would be a mistake."

Also on the economic front, the Labor Department said that new U.S. jobless claims fell 34,000 to 303,000 for the week ended July 16, the largest decline in more than two years. Economists had expected claims to drop to 326,000 for the week. The less-volatile four-week moving average fell 3,250 to 318,000.

Additionally, the Conference Board said its index of leading indicators rose 0.9% to a 137.7 reading in June, higher than economists expectations of a 0.5% increase after a 0.5% drop in May.

The Federal Reserve Bank of Philadelphia's regional manufacturing index rebounded to 9.6 in July from negative 2.2 the previous month. The gain brought the index very close to the consensus and was the highest level in three months.