US stocks take a dip

US stocks dipped lower tonight despite a sharp drop in oil prices and new strength in the dollar as investors worried about the market’s ability to hold its gains after last week’s rally.

Investors hoped the new week would extend an advance forged on mostly positive fourth-quarter earnings reports and reassuring economic data. Instead, Monday’s light trading meant that many players kept to the sidelines, unsure if the rally had staying power.

“The question now is whether last week was just a technical bounce, or if there’s something here that we can trade on to the upside,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research in Cincinnati. “So today, you have people waiting to see whether these gains stick.”

The Dow Jones industrial average fell 0.37, or 0.01%, to 10,715.76 after a 123-point gain on Friday.

Broader stock indicators lost ground. The Standard & Poor’s 500 index was down 1.31, or 0.11%, at 1,201.72, and the Nasdaq composite index lost 4.63, or 0.22%, to 2,082.03.

There was no catalyst to keep buyers in the market today. President George Bush released his 2.57 trillion budget proposal, slashed spending across a wide swath of government programmes, but it also included a record deficit.

“It’s a positive sign, certainly, and you’re seeing the dollar rise because of that,” Peter Cardillo, chief strategist and senior vice president at SW Bach & Co, said of the budget. “The question is, is it going to be torn apart by Congress? That’s a big battle on the horizon.”

Even a new three-week high for the dollar and a sharp drop in crude oil futures failed to move stocks. A barrel of light crude closed at 45.28, down 1.20, on the New York Mercantile Exchange.

Last week’s substantial move higher was broad-based, with only technology shares lagging due to concerns about weak corporate capital spending. Investors were cheered by reports that pointed to economic growth healthy enough to sustain stock prices but slow enough to avoid inflation issues.

In corporate news, The Wall Street Journal reported that an external panel monitoring the safety of Merck & Co’s Vioxx arthritis drug had early data showing health issues – increasing concerns that the expected wave of litigation against the company would be successful. The drug was pulled from the market in September after it was found to carry an increased risk of heart attack and stroke.

Merck nonetheless climbed 8 cents to 28.43.

Health benefits provider Humana saw its profits drop 29% due to a shift in accounting for a new contract. The company nonetheless beat analysts’ forecasts by 2 cents per share. Humana dropped 50 cents to 34.15.

Toy manufacturer Hasbro lost 40 cents to 20 after missing Wall Street profit expectations by 5 cents per share. The company blamed weak US toy sales for a lacklustre quarter.

Aircraft parts manufacturer Goodrich said strong sales to Europe’s Airbus consortium and to Boeing led to a sharp rise in profits for the quarter. The company beat expectations by 17 cents per share before one-time charges. Goodrich was up 93 cents at 35.43.

Declining issues barely outnumbered advancers on the New York Stock Exchange, where volume was light.

The Russell 2000 index of smaller companies was down 0.83, or 0.13%, at 636.61.