Dow drops below 8,000

More bad economic news and profit declines further demoralised investors today, sending the Dow Jones industrials down 230 points and to their first close below 8,000 in nearly two months.

The Dow closed down 230.06, or 2.8%, at 7,942.39. The index last traded below 8,000 on August 5, but had not closed below that level since hitting its July 23 low of 7,702.34.

The Dow, down 438 points in the past three sessions, has lost more than 1,100 points since its recent peak on August 22 as mixed economic reports and worries about war with Iraq have eroded investors’ confidence.

The broader market also pulled back today. The Nasdaq composite index fell 35.69, or 2.9%, to 1,216.44. The Standard & Poor’s 500 index declined 26.14, or 3%, to 843.32.

Disappointing economic news contributed to today’s decline. The Commerce Department reported housing construction dropped 2.2% last month, surprising analysts who expected a 1.8% increase from a sector that remained relatively strong when the economy cooled. Home builders such as Lennar, down dlrs 3.25 at dlrs 53.40, were among Wall Street’s losers.

Dismal earnings and brokerage downgrades also pulled stocks lower.

Brokerage house Morgan Stanley fell dlrs 4.20 to dlrs 33.90 on third-quarter earnings that were 12 cents a share short of expectations.

IBM dropped dlrs 4.75 to dlrs 64.80 after Morgan Stanley cut its price targets and Merrill Lynch lowered its 2002 and 2003 earnings outlook on the Dow industrial. The moves on IBM were in large part due to a third-quarter profit warning by competitor EDS, which itself plunged dlrs 19.26, or nearly 53%, to dlrs 17.20.

Coca-Cola declined dlrs 1.63 to dlrs 47.67 and PepsiCo fell 90 cents to dlrs 37.15 after UBS Warburg downgraded each of the companies.

Sun Microsystems fell 30 cents to dlrs 2.70 after Banc of America cut its rating on the networker to “market perform” from “buy”.

Other analysts attribute the market’s slippage to investors’ having expected a more pronounced economic recovery, rather than the more fitful one that is under way.

Declining issues outnumbered advancers nearly 4 to 1 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, the barometer of smaller company stocks, fell 11.21, or 3%, to 365.54.