Stocks drop on chip downgrade

Wall Street’s fortunes turned negative again today as a downgrade of chip makers by Merrill Lynch and retailers’ disappointing sales gave investors more reasons to doubt the strength of a business recovery. Stocks fell sharply, with the tech sector suffering the heaviest losses.

The Dow Jones industrial average closed down 172.16, or 1.8%, at 9,624.64. The loss easily wiped out the Dow’s 108.96-point gain on Wednesday, when all of the market’s major indicators finished higher for the first time in nearly two weeks.

The broader market also fell sharply. The Nasdaq composite index dropped 40.38, or 2.5%, to 1,554.88, losing all of its 17.14 advance from Wednesday.

The Standard & Poor’s 500 index fell 20.76, or 2%, to 1,029.15, erasing Wednesday’s gain of 9.21.

Analysts said the market’s persistent selling was no surprise because earnings remain depressed, jeopardising the recovery investors had hoped would happen in the second half of 2002.

Intel fell dlrs 1.18 to dlrs 27 Monday after Merrill Lynch lowered its near-term rating on the stock to ‘‘neutral’’ from ‘‘strong buy.’’ Investors were also reluctant to take chances on Intel ahead of its mid-quarter business update due out later in the day.

Also downgraded by Merrill, Texas Instruments fell 75 cents to dlrs 27.69, and Triquint Semiconductor sank 91 cents to dlrs 7.47.

Weak retail sales for May also drove the market lower. AnnTaylor fell dlrs 1.28 to dlrs 26.80 after reporting a 5.2% decline in sales from stores open at least a year. Sears stumbled dlrs 1.76 to dlrs 56.26 after reporting sales slumped 4.4% decline at its department stores.

Tyco plunged nearly 16%, down dlrs 2.70 at dlrs 14.60, on concerns that former chief executive Dennis Kozlowski abused company funds. New York prosecutors are investigating whether Kozlowski tapped company accounts to buy his dlrs 18 million New York apartment or whether he got interest-free loans from Tyco to buy artwork. The Securities and Exchange Commission has also opened an investigation, according to a report in The Wall Street Journal.

While the market has dropped significantly in recent sessions with the Dow on Monday falling to levels not seen since early February and the Nasdaq suffering its lowest close since October 2 many analysts see no sign of reprieve for Wall Street.

Oracle fell 51 cents to dlrs 8.15 today losing some of Wednesday’s 84 cent gain when chief executive Larry Ellison said the company would meet fourth-quarter expectations for earnings of 12 cents a share.

Declining issues outnumbered advancers more than 2 to 1 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, fell 9.75, or 2.1%, to 465.29.