Investors ruffled by widening Middle East violence send stocks lower

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Posted 11:44AM on Monday, April 1, 2002

NEW YORK - Unnerved by increasing violence in the Middle East, investors sent stock prices sharply lower Monday, ignoring economic reports showing a growing recovery from last year's recession. In late morning trading, the Dow Jones industrial average dropped 121.78, or just over 1 percent, to 10,282.16. Broader stock indicators also declined. The Standard & Poor's 500 index was down 12.17, or 1.06 percent, at 1,135.22, while the Nasdaq composite index fell 19.31, or 1.05 percent, to 1,826.04. Analysts said that investors were upset by rising tension between Israel and the Palestinians and the possibility the violence could spread to neighboring countries. "The substantial increase in hostility in the Middle East is what's hurting the market," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc. in St. Louis, Mo. "Israel has basically declared war, after several more terrorist bombings over the weekend." Larry Rice, chief investment officer at Fahnestock & Co. in New York, agreed. "It's all the Middle East," Rice said. "We don't know how much worse this can get, if it could spread." He said the rising tension in the region has pushed economic news "to the second page" and concerns about accounting problems related to Enron and Arthur Andersen "to the third page." On Sunday night, Israeli Prime Minister Ariel Sharon said Israel was "at war" and branded Palestinian leader Yasser Arafat "an enemy of Israel." Arafat, meanwhile, has been trapped in his offices in the West Bank town of Ramallah by Israeli troops. On Monday, police fired tear gas and water cannon to disperse demonstrators in Cairo, and Jordanian security forces used batons to push back protesters. Stocks fell despite reports indicating that the recovery from the recession was widening. The Institute for Supply Management, formerly the National Association of Purchasing Management, said its index of business activity rose to 55.6 in March from 54.7 percent in February. Analysts had been expecting a reading of 54.3. An index above 50 signifies growth in manufacturing. Meanwhile, the Commerce Department said construction spending posted its biggest increase in a year in February -- 1.1 percent -- as builders took advantage of Americans' strong demand for new homes. The third straight monthly increase was larger than the 0.6 percent analysts expected. Among hard-hit stocks on Monday were Ford, which Prudential cut to "sell" from "hold," and Wal-Mart, which Merrill Lynch cut to "buy" from "strong buy." Ford changed hands at $15.65, down 84 cents or more than 5 percent. Wal-Mart was down $2.65, or more than 4 percent, at $58.65. Sierra Pacific Resources fell $5.09, or more than 33 percent, to $10 after Merrill Lynch and Goldman Sachs cut their ratings. On Friday, energy regulators granted about half the rate increases requested by Sierra Pacific's Nevada Power Co. Microsoft was off 74 cents at $59.57, while Intel dropped 13 cents to $30.28. Fears that business profits won't improve enough to justify higher stock prices led to mixed results on Thursday, the last trading session before the Good Friday holiday closed markets. Last week, the Dow slipped 0.2 percent, the Nasdaq lost 0.3 percent and the S&P fell 0.1 percent. Declining shares exceed advancing shares by 2 to 1 on the New York Stock Exchange, where volume was 325.4 million shares compared with 327.4 million on Thursday. The Russell 2000 index dropped 8.04 to 498.42. Overseas, Japan's Nikkei stock average rose 0.3 percent. European stock markets were closed for Easter Monday.