Stocks Suffer Another Selloff - TheStreet

Updated from 3:21 p.m. EDT

Stocks struggled again Tuesday and closed lower as a settlement in the

Merrill Lynch

(MER)

conflict-of-interest case and solid profit reports from the retail sector failed to create buying interest.

The

Dow Jones Industrial Average finished with a loss of 123.79 points, or 1.2%, to 10,105.71, the second straight day the index has fallen more than 100 points. The

Nasdaq fell 37.41 points, or 2.2%, to 1664.18, and the

S&P 500 shed 12 points, or 1.1%, to 1079.88.

The big corporate story of the day involved news that New York Attorney General Eliot Spitzer has reached a settlement with Merrill Lynch in his probe of analysts' stock recommendations and their links to investment banking deals. The firm agreed to pay $100 million to New York and several other states to settle the investigation, but didn't admit to any wrongdoing.

Merrill said it would separate analyst compensation from its investment banking business, awarding compensation to analysts only as it relates to the benefit of its clients. Merrill's shares rose 1.1% to $43.85.

Other financials, including

Goldman Sachs

(GS) - Get Report

and

Lehman Brothers

(LEH)

started out on the upside but ended lower.

Outside the world of corporate news, another report was emerging about possible anthrax contamination in the mail, this one at the

International Monetary Fund

in Washington. The IMF said some of its mail tested positive for anthrax but stressed that the findings weren't conclusive. Additional tests are being conducted.

Adding to the jitters, a televised report late in the session indicated that the

Federal Bureau of Investigation

has warned New York City officials to be on the lookout for possible terrorist plots against landmarks, including the Brooklyn Bridge and the Statue of Liberty.

Headlining the earnings news was retail giant

Home Depot

(HD) - Get Report

, which reported a 35% rise in first-quarter profits as more consumers made repairs to their homes and the company continued to cut operating costs.

The world's largest home improvement retailer said it earned $856 million, or 36 cents a share, compared with $632 million, or 27 cents a share, in the year-ago quarter. Analysts were expecting the company to post a profit of 33 cents a share. Shares of Home Depot traded lower by 7.4% to $44.90 after the company said second-quarter same-store sales would increase 2% to 4%.

Home Depot's earnings come a day after main rival

Lowe's

(LOW) - Get Report

reported better-than-expected first-quarter earnings while raising its outlook for the rest of the year. Lowe's was down 1.4% to $46.13.

Another big retailer,

Target

(TGT) - Get Report

, beat first-quarter expectations by 2 cents, reporting a 36% increase in net income. The company posted net income of $345 million, or 38 cents a share, compared with $254 million in the same period last year. Revenue for the quarter rose to $9.6 billion from $8.3 billion. Target's shares, however, dipped 1.9% to $41.90 after the company offered disappointing same-store sales guidance for the next quarter.

Office supply chain

Staples

(SPLS)

said first-quarter profits improved thanks to cost-cutting initiatives, new store openings, and an increase in the sale of paper and ink products. Excluding a one-time tax benefit, the company earned of $65 million, or 14 cents a share, beating analysts' expectations by 3 cents and up from the year-ago mark of 8 cents a share. Sales for the quarter rose 3% to $2.74 billion. The company's stock climbed 6.3% to $21.88.

Warehouse retailer

BJ's Wholesale

(BJS)

said quarterly profits rose slightly thanks to increased sales of its food and health and beauty products. The company posted first-quarter earnings of $23.1 million, or 32 cents a share, compared with $23 million, or 31 cents a share, a year earlier. The results matched Wall Street's estimates.

Wireless investors got some good news from

Qualcomm

(QCOM) - Get Report

, which reaffirmed guidance for the fiscal third quarter full year. The wireless technology developer said it expects strong sales of its latest line of high-speed equipment featuring rich color displays. Shares of Qualcomm were up 2.3% to $32.62.

Elsewhere in the tech sector,

JNI Corp.

(JNIC)

, a maker of networking and storage equipment, was fell 6% to $5.07 after disclosing that it overstated its fourth-quarter 2001 sales figures by 4%, resulting in the firing of chief executive Neal Waddington.

On the merger and acquisition front,

Nucor

(NUE) - Get Report

offered to acquire struggling rival

Birmingham Steel

(BIRS)

for $615 million in cash provided Birmingham files for Chapter 11 bankruptcy protection. Birmingham's shares ended at 37 cents, while Nucor was up 3% to $63.52.

In the latest move by the

Securities and Exchange Commission

, accounting firm

Ernst & Young

has been charged with violating securities regulations by entering into lucrative business deals with a company that it also audited. Federal regulators alleged that Ernst & Young's marketing agreement in the late 1990s with

PeopleSoft

(PSFT)

created a conflict of interest that prevented the accounting firm from being objective, thereby breaking rules governing auditor independence.

U.S. Treasury issues were higher across the board. The 10-year note was up 12/32 to 97 29/32, yielding 5.15%. The 30-year bond was the strongest issue.

Europe's bourses were mostly lower. London's FTSE 100 lost 0.2% to 5197, and Germany's Xetra DAX fell 0.3% to 4985. Japan's Nikkei 225 fell 0.5% to 11,801, while Hong Kong's Hang Seng sold off 1.9% to 11,753.