US stocks slip

Wall Street began 2005 with a loss today as investors shored up portfolios and abandoned risky positions taken during the post-election rally.

The drop came despite falling oil prices and a better-than-expected sales forecast from Wal-Mart.

While Wall Street has usually opened the new year with a buying spree, investors were picky, favouring large caps with solid balance sheets over small caps and more speculative bets.

Analysts said Wall Street’s customary new year buying could have been accelerated by the market’s rally in November and December.

“Usually, you see a lot more speculative trading to start the new year, with all the new money coming in,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “But here, you’re seeing a big move to quality, large cap stocks. I think there’s been a realisation that these stocks are attractively priced.”

As investors sold off stocks, they overlooked a sharp drop in crude futures, triggered by mild weather in the north east of the United States and reports of increased crude production. The drop could be good news for consumer spending, which accounts for two-thirds of the nation’s economy.

A barrel of light crude was quoted at 42.13, down 1.32, on the New York Mercantile Exchange.

The Dow Jones industrial average fell 53.58, or 0.5 %, to 10,729.43.

Broader stock indicators fell sharply. The Standard & Poor’s 500 index was down 9.84, or 0.81%, at 1,202.08, and the Nasdaq composite index tumbled 23.29, or 1.07%, to 2,152.15.

A mix of economic news further sapped any momentum stocks may have enjoyed.

Construction spending took an unexpected hit in November, falling 0.4% for the month, the Commerce Department said. Investors had been expecting a rise of 0.4% after October’s 0.3% gain.

The Institute for Supply Management’s manufacturing index rose to 58.6 in December, from 57.8 in the previous month and edging past Wall Street’s prediction of 58.5.

The index measures the strength of manufacturing activity in the United States. However, Hugh Johnson, chief investment officer at First Albany, noted that a breakdown of the ISM report showed problems, most notably in a lack of employment and production volume.

“There were certainly aspects of the ISM report that were not comforting,” Johnson said. “But overall, when you look at the big picture, there is some argument that the real concern is the market moved too far, too fast in the fourth quarter, and I think you’re starting to see some sophisticated portfolio managers take money off the table.”

While the majority of retailers were expected to report their holiday sales results on Thursday, Wal-Mart gave Wall Street a preview of its figures, which were better than expected and sparked hope that other retailers would fare similarly.

Sales at Wal-Mart stores open at least a year rose 3% for December, prompted by strong after-Christmas sales. The company’s previous forecasts were in the middle of a 1% to 3% range. Wal-Mart gained 53 cents to 53.35.

Drug store chain Walgreen jumped 2.01 to 40.38 after the company reported a 30.5% jump in profits, crediting increases in prescription and general merchandise sales. The company beat Wall Street earnings forecasts by 2 cents per share.

Kmart Holding Corp said its same-store sales fell 4.6 % for November and December – which represents an improvement over past sales declines for the struggling discount retailer. Kmart climbed 1.15 to 100.10.

Analysts at Goldman Sachs increased their earnings targets for both Google and Yahoo!, saying advertising revenues would increase through the early part of the year. Yahoo! rose 50 cents to 38.18, while Google surged 9.92 to 202.72, a record high close.

The big drop in oil prices hurt related stocks. ChevronTexaco slid 1.61 to 50.90, ConocoPhillips lost 2.72 to 84.11 and Exxon Mobil fell 1.17 to 50.09.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where volume was moderate.

The Russell 2000 index of smaller companies was down 11.13, or 1.71%, at 640.44.