Wall St. pulls back

December 3, 2001 Posted: 2207 GMT

By Staff Writer Alexandra Twin

NEW YORK (CNN/Money) -- U.S. stocks closed off their lows Monday, but remained pressured as increased violence in the Middle East and energy trader Enron's bankruptcy filing put a damper on investors' recent enthusiasm.

Enron (ENE: up $0.14 to $0.40, Research, Estimates) filed for bankruptcy protection Sunday and sued intended merger partner Dynegy (DYN: down $3.18 to $27.17, Research, Estimates) for $10 billion. Following the news, Dynegy countersued.

A survey showing an improvement in the manufacturing sector, as well as reports that some automakers saw a rise in sales last month, attracted little attention as most eyes turned abroad.

In the Middle East, Israeli missiles struck Gaza near the headquarters of Palestinian leader Yasser Arafat, who was not present at the time. The attacks were said to be in response to a recent spate of bomb attacks in Jerusalem and Haifa that killed 28 people and wounded at least 180.

Israeli Prime Minister Ariel Sharon, speaking at a press conference, said the blame for the attacks was on Arafat.

"Considering everything going on, you'd think the market would be down a lot more than it is, so on balance, it's holding up pretty well," said Jack Baker, head of equities, Putnam Lovell Securities.

The Nasdaq composite index fell 25.68 to 1,904.90, after being down as much as 31 points earlier in the session. The Dow Jones industrial average shed 87.60 to 9,763.96, recovering from an earlier loss of 147. The Standard & Poor's 500 dipped 9.55 to 1,129.90.

The latest development for Enron hurt financials, although it came as no surprise to Wall Street. Bankruptcy talk dogged the troubled company since its deal with Dynegy fell apart last week, Nick Angilletta, head of retail sales trading at Salomon Smith Barney, told CNNfn's Halftime Report.

Angilletta cited political uncertainty as the main culprit in the day's declines. (477K AIFF) (477K WAV)

In Asia, the Nikkei index fell more than 3 percent in Monday trading, while European markets closed mixed.

Treasury prices were modestly higher, with the 10-year yield at 4.73 percent. The dollar was modestly stronger against both the yen and euro. Light crude oil futures rose 64 cents to $20.08 a barrel in New York.

Market breadth was negative. On the Nasdaq, losers beat winners by more than 3-to-2 as 1.48 billion shares traded. On the New York Stock Exchange, decliners topped advancers 3-to-2 as almost 1.19 billion shares changed hands.

Microsoft, Ford among actives

Networking issues hurt techs, while energy and financials suffered on the Enron news.

IBM (IBM: down $1.46 to $114.13, Research, Estimates) was the biggest Dow decliner, as 24 of the average's 30 issues trended lower.

Machinists at United Technologies' (UTX: down $1.29 to $58.91, Research, Estimates) Pratt & Whitney unit hit the picket lines early Monday, hours after rejecting a contract proposal from the jet engine maker.

According to published reports, Microsoft (MSFT: up $0.56 to $64.77, Research, Estimates) lost a European cable television software contract and indicated it would reorganize its MSN unit, including executive changes, to make it better able to compete with AOL Time Warner (AOL: down $1.32 to $33.58, Research, Estimates), the parent company of CNN/Money.com.

Ford Motor (F: down $1.14 to $17.80, Research, Estimates) said its November sales were up 4.4 percent, but the stock sold off on reports that the automaker may warn that it will miss fourth-quarter forecasts. The company is also expected to disclose several steps to stem losses, including cutting some benefits for white-collar employees.

Salomon Smith Barney cut 2002 earnings estimates on General Electric (GE: down $1.58 to $36.92, Research, Estimates) to $1.66 a share from $1.74.

MedImmune (MEDI: down $5.27 to $38.83, Research, Estimates) agreed to buy Aviron (AVIR: up $4.37 to $41.42, Research, Estimates) in a stock swap worth about $1.5 billion.

Soundview Technology upgraded Internet portal Yahoo! (YHOO: up $0.26 to $15.83, Research, Estimates) and downgraded rival AOL.

Micron Technology (MU: up $1.40 to $28.56, Research, Estimates)  benefited from a Merrill Lynch upgrade after disclosing talks with Hynix Semiconductors about possible strategic partnerships.

Argentina concerns rise

Argentina also put pressure on financial stocks already hurt by Enron, as investors worried about the potential impact on lenders should the country default on its $132 billion public debt.

While the default possibility is hardly a new one, internal recession concerns were exacerbated over the last week, causing Argentines to withdraw large sums from banks, and spawning fears of a so-called "run on the banks."

In response, the government instituted several counter-measures over the weekend, including a $250-a-week limit on withdrawals and a ban on banks lending in pesos.

In the United States, two positive economic reports were largely ignored.

The National Association of Purchasing Management's index of manufacturing activity rose to 44.5 in November from 39.8 in October, surpassing expectations but still showing a contraction in the sector. In addition, a government report showed construction spending rose 1.9 percent in October when a decline had been expected.

Separately, the U.S. Commerce Department said personal spending rose 2.9 percent in October, in comparison with a revised 1.7 percent decline in September. Personal income was unchanged in the same period.

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