US shares fall

Wall Street pulled back today, retreating from record levels following disappointing results from longtime favourites Caterpillar Inc and Google Inc. The Dow Jones industrials fell nearly 150 points.

The drop in stocks capped a losing week for the Dow after three weeks of gains, and came a day after the blue chips finished above 14,000 for the first time. The Standard & Poor’s 500 index likewise logged a record close yesterday.

While today’s retrenchment might not be surprising following weeks of somewhat volatile trading and the big gains yesterday.

Caterpillar has been one of the best-performers among the 30 stocks which make up the Dow and a big contributor in the blue chips’ march to 14,000. The heavy equipment maker unnerved investors when its results came in well below expectations.

Jitters over sub-prime lending also weighed on the stock market, and led investors to buy up safer Treasury bonds instead. As Treasury prices rose, the benchmark 10-year note’s yield dropped sharply to 4.95% from 5.03% late yesterday.

Meanwhile, technology shares took a hit after a strong run yesterday.

Google turned in a second-quarter profit which fell short of Wall Street’s high expectations, while Microsoft Corp’s earnings report was not impressive enough to alleviate investors’ concerns about the sector.

“As people start to absorb the numbers and start to see the second-quarter numbers aren’t good as the first quarter, that starts to create some pullback a bit,” said Nick Raich, director of research at National City Private Client Group.

The Dow fell 149.33, or 1.07%, to 13,851.08. The index earlier declined by as many as 200 points, and finished the week down 0.40%.

Broader stock indicators also lost ground. The S&P 500 index fell 18.98, or 1.22%, to 1,534.10, and ended the week 1.19% lower.

The Nasdaq composite index fell 32.44, or 1.19%, to 2,687.60, and finished down 0.72% for the week.

Not only was Wall Street busy digesting the first sizable disappointments of the second-quarter earnings season, but investors also dealt with added volatility because of the expiration of four types of options contracts – an occurrence known as quadruple witching.

The dollar was lower against most other major currencies. Gold prices rose. Light, sweet crude fell 35 cents to 75.57 dollars a barrel on the New York Mercantile Exchange today, after trading above 76 dollars a day earlier for the first time in 11 months.

Looking past high oil prices, which can stoke inflation, stocks forged gains earlier this week in part on earnings news. Of the 130 companies in the S&P 500 which have reported quarterly results, earnings growth has been 1%, Mr Raich said.

He noted that companies were expected to show flat profits so the results are better than expected. Still, he said, “the margin by which companies are beating estimates in the second quarter is so far the lowest we’ve seen in five years”.

“With some high expectations and some complacency in the market, the chances of a near-term pullback have gone up over the past month,” he added, arguing that Wall Street’s expectations for corporate profit growth are too high.

Caterpillar cited lacklustre sales in North American construction markets as well as a bigger-than-expected increase in operating costs. However, the company left its full-year profit forecast unchanged.

Caterpillar was the weakest performer among the Dow stocks, falling 3.78 dollars, or 4.4%, to 83.20 dollars.

Google fell 28.47 dollars, or 5.2%, to 520.12 dollars after its earnings before certain costs missed Wall Street’s forecast. Still, the company saw revenue jump 58% to 3.87 billion dollars. Investors also fretted as profit margins narrowed as the company spent to hire more workers and acquire content for its websites.

Microsoft, which like Caterpillar is part of the Dow, fell 35 cents to 31.16 dollars after its earnings met expectations but failed to dazzle investors after several robust quarters that topped forecasts.

While no major economic news was released today, St Louis Federal Reserve President William Poole weighed in on the sub-prime mortgage market in a speech in St Louis.

He argued that Wall Street was right to punish shares of companies which made bad bets by offering loans to borrowers with spotty credit history.

Concerns about an unravelling of sub-prime loans have dotted Wall Street’s advance in recent months.

Investors grew skittish earlier in the week – helping send stocks lower in Wednesday’s session – following word that two Bear Stearns Cos hedge funds were left essentially worthless following bad bets on the sub-prime lending market.

As home values in parts of the country have fallen, some borrowers behind on payments have found it harder to tap into their home equity to square away their debts.

Fed Chairman Ben Bernanke warned yesterday that the situation with sub-prime loans would grow worse before improving.

Declining issues outnumbered advancers by more than 3 to 1 today on the New York Stock Exchange, where volume came to 1.99 billion shares.

The Russell 2000 index of smaller companies fell 15.41, or 1.81%, to 836.44.