Another fall for Dow

Wall Street retrenched today, closing sharply lower as investors showed their cautious side and cashed in profits from the market's best week in nearly five years.

The Dow Jones industrial average fell more than 100 points.

Given the scope of last week's gains, a pullback today wasn't unexpected and perhaps reflected the normal ebb-and-flow of trading.

"It's not like all of our problems went away because the market was up a couple of days last week. There are still some problems hanging over," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles.

He said investors chiefly remained concerned about the labour market - given the huge effect of consumer spending on the economy - and on the feasibility of efforts to aid struggling bond insurers.

The session's move lower continued even after a Commerce Department report showed that orders at US factories rose by 2.3% in December - the biggest increase since July. Analysts had been expecting a 2% increase after a 1.7% gain in November.

While stocks showed little reaction to the factory orders report, Wall Street remains eager for any clues about the nation's economic health. It continued to watch earnings reports trickle in; the readings could help indicate whether Wall Street last week carved the beginnings of a sustainable recovery.

Last week, the Dow Jones industrial average jumped 4.39%, the Standard & Poor's 500 index gained 3.75%, and the Nasdaq composite index advanced 4.87%.

Downgrades of credit card companies American Express and Capital One Financial also weighed on stocks today.

The Dow fell 108.03, or 0.85%, to 12,635.16.

Broader stock indicators also lost ground. The S&P 500 index fell 14.60, or 1.05%, to 1,380.82, and the Nasdaq fell 30.51, or 1.26%, to 2,382.85.

The Dow is 10.8% below its record close of 14,164.53 from October 9, but is up 8.6% from the 15-month lows it hit last month. The Federal Reserve's second interest-rate cut in about a week helped boost stocks last week.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.64% from 3.60% late on Friday.

The dollar slipped against most other major currencies, and gold prices also fell.

In corporate news, Google said yesterday that Microsoft's $42bn (€28.3bn) bid for Yahoo, announced on Friday, amounts to an attempt to gain illegal control over the internet. Microsoft chief executive Steve Ballmer said today the proposed deal would leave the software maker as a "strong No 2 competitor" against Google.

Google, whose stock is down about one-third from its high of $741.79 on November 6, fell $20.47, or 4%, to $495.43, Dow component Microsoft dipped 26 cents to $30.19, and Yahoo rose 95 cents, or 3.4%, to $29.33.

Financial stocks, which helped drive last week's gains, fell after the Financial Times reported that major private equity firms aren't likely to take part in efforts to shore up the finances of troubled bond insurers Ambac Financial Group and MBIA.

Ambac fell $1.81, or 13.7%, to $11.39, while MBIA declined 97 cents, or 5.9%, to $15.39.

American Express, one of the 30 stocks that make up the Dow industrials, fell $1.94, or 3.9%, to $47.66, while Capital One fell $4.32, or 7.6%, to $52.65.

"We have some downgrades in the financial sector that are hitting those stocks," said Peter Cardillo, chief market economist at Avalon Partners. "And we also had a fairly good week last week, so it would only be natural to fall this week."

"The market also needs closure on what is going to happen to the bond insurance industry. Until we know if it gets a rescue plan, the stock market is likely to stay defensive."

Burger chain Wendy's International fell $1.25, or 5%, to $23.93 after reporting its fourth-quarter earnings rose 42% amid increased profit margins but missed expectations.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 1.36 billion shares.

The Russell 2000 index of smaller companies fell 7.04, or 0.96%, to 723.46.