Blue chips lead downturn

US STOCKS made a U-turn into negative territory at midday yesterday with blue-chips leading the decline as investors chewed on an earnings warning from McDonald's combined with an unexpected drop in manufacturing activity last month.

At about 11.30am ET, the Dow Jones industrial average fell 57.15 to 8,322.12, pulling back quickly after a sharp triple-digit bounce on the back of positive news on Iraq. The Nasdaq composite fell 1.33 to 1,274.63, while the Standard & Poor's 500 index slipped 4.44 to 886.64. Market watchers said the brief bounce in the early going was more of a fool's rally and investors are still focused on the same areas of concern, the economy and corporate earnings.

"The traders came in this morning and didn't really believe the Iraq news," said Bob McCooey, trader with the Griswald Company. "Iraq offered an olive branch but the market doesn't really believe it. So in the first 30 minutes, the Dow went from 100 points up to down about 20 points. This shows that there's a lot of uncertainty out there."