Drop in consumer confidence hits US stocks

A sharp drop in consumer confidence gave US investors another excuse to sell today, sending most stocks moderately lower in what some analysts are starting to call a market correction.

The Dow Jones industrial average lost 43.25, or 0.4%, to close at 10,566.37, having fallen more than 80 points earlier in the session.

Broader stock indicators were narrowly lower. The Standard & Poor’s 500 index was down 1.90, or 0.2%, at 1,139.09. The tech-heavy Nasdaq composite index slipped 2.08, or 0.1%, to 2,005.44. The Nasdaq has nearly erased its 2004 gains over the past week.

The worse-than-expected drop in the Conference Board’s consumer confidence index triggered the selloff.

The index fell to 87.3 in February from 96.4 a month earlier that reading was an 18-month high for the index. Wall Street analysts had expected the figure to come in at 92 or 93.

Today’s selling continued more than a week of down markets that could be the correction some analysts and investors have been expecting.

A correction is a reversal of the prevailing trend in the markets, which have been rising steadily since last spring.

Economists see corrections as important parts of the overall market mechanism, keeping stock prices from becoming inflated.

“We haven’t had a meaningful correction since last March,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. “In the near-term it’s painful, but it’s very, very healthy.”

Federal Reserve chairman Alan Greenspan testified on Capitol Hill on the state of federally-funded mortgage companies, Fannie Mae and Freddie Mac, saying they could pose a threat to the country’s financial system if their debt was not restrained through greater regulation.

Fannie Mae fell 2.65 to 76.25 and Freddie Mac shed 1.81 to 62.12.

Telecom stocks fell as Morgan Stanley downgraded them before the session began. Among the downgrades, Sprint Corp. fell 49 cents to 17.98, Nextel Communications shed 49 cents to 27.05, and AT&T Corp gained 23 cents to 19.95. The investment house upgraded AT&T Wireless Services, which rose 7 cents to 13.65, and Verizon Communications, which climbed 1.08 to 38.09.

Comcast Corp rose 31 cents to 29.82 after saying its 54 billion bid for The Walt Disney Co was not properly considered by the Disney board. Disney was down 79 cents at 25.96.

Clear Channel Communications, owner of local radio and television stations, dropped 92 cents to 42.92 after posting earnings 2 cents short of analysts’ expectations.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume totalled 1.52 billion shares, compared with 1.38 billion on Monday.

On the Nasdaq market, decliners were ahead of advancers by a 6 to 5 ratio.

The Russell 2000 index of smaller companies was up 1.67, or 0.3%, at 571.87.