U.S. Stocks Decline, Led by Technology Companies; Cisco Drops

Nov. 8 -- U.S. stocks tumbled for a second day after Federal Reserve Chairman Ben S. Bernanke said the economy will probably ``slow noticeably'' by year-end and Cisco Systems Inc. reported weakening demand from financial and car companies.

Cisco, the world's biggest maker of networking equipment, led technology shares to the steepest decline since January 2003. Goldman Sachs Group Inc., Merrill Lynch & Co. and Citigroup Inc. helped send financial companies to their biggest two-day drop in five years after American International Group Inc., the world's largest insurer, said profit fell on losses linked to mortgages.

The Standard & Poor's 500 Index lost 18.11, or 1.2 percent, to 1,457.51 at 2:26 p.m. in New York, sending the gauge to its steepest two-day decline since January 2003. The Dow Jones Industrial Average fell 166.64, or 1.3 percent, to 13,133.38. The Nasdaq Composite Index decreased 83.76, or 3.1 percent, to 2,665. About five stocks declined for every three that rose on the New York Stock Exchange.

``You've still got the financials sector that's sort of a black hole and on balance a subdued earnings environment with subdued outlooks,'' said Dean Gulis, who helps manage $3 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan. ``At the same time you've got the consumer area where there's some softening in demand. That combination is hard to make any headway against.''

Bernanke also told a congressional committee that rising commodity prices and a weaker dollar may stoke inflation. The Nasdaq posted its biggest drop since February on concern that consumer and business spending will weaken.

Cisco, Oracle

Cisco tumbled $2.79, or 8.5 percent, to $29.96. The announcement marked the second time this year Cisco disappointed investors as a housing slump and tightening credit markets have forced U.S. companies to cut network spending. Orders fell from Cisco's top 25 U.S. customers, which include eight financial services companies and two automakers, the company said.

The S&P 500 Information Technology Index tumbled 4.4 percent after Cisco's outlook dragged down other computer-related stocks. Oracle Corp., the third-largest software maker, dropped $1.95 to $20.15. Juniper Networks Inc., the second-biggest maker of computer-networking equipment, lost $1.84 to $32.28.

Apple Inc., the maker of Macintosh computers and iPod music players, dropped $12.15 to $174.15. Hewlett-Packard Co., the world's largest maker of printers, declined $2.40 to $49.44. Google Inc., the world's most popular Internet search engine, fell $41.33 to $691.60.

'Sea Change'

Technology shares, which have climbed 15 percent as a group this year, have ``really been safe havens and high growth stocks that people have been buying because they don't have exposure to subprime and real estate,'' said Marc Weinberger, head trader at W. Quillen Securities in New York. ``What changed today was when Cisco gave their commentary on the conference call and investors could see technology was also vulnerable. That was a sea- change.''

AIG, the world's largest insurer, slid $3.29 to $54.61. The company missed analysts' profit forecasts by the biggest margin in two years on losses related to the U.S. housing recession. AIG recorded $864 million in losses before taxes and marked down other holdings, including mortgage-backed securities, by $3.39 billion.

Financial shares in the S&P 500 tumbled 1.8 percent as a group after the U.S. asset-backed commercial paper market had its biggest weekly drop in two months, Fitch Ratings said it may cut ratings on insured collateralized debt obligations and Moody's Investors Service said managers of structured investment vehicles don't expect their business model to survive.

`Comfort Level'

Citigroup, which created the first SIV in 1988 and is the largest manager of the companies, declined $1.90 to $31.51. Goldman, the biggest U.S. securities firm by market value, dropped $9.03 to $205.15. Merrill Lynch, the third largest U.S. securities firm, lost $2.12 to $51.87.

``The biggest overriding concern is the financials,'' said Paul Kandel, who helps oversee $5 billion as a portfolio manager at Sentinel Asset Management in New York. ``You've had lots of companies announce significant charges, but I'm not sure that there's a comfort level that we've seen the end of the charges.''

Stock swings have widened in the past week, pushing an index of volatility to a three-month high. The Dow average has fallen more than 360 points twice in the last five days and the S&P 500 is poised for its worst week in a month on speculation financial companies face more losses on mortgage assets.

The Chicago Board Options Exchange Volatility Index increased 5.9 percent today to 28.06, the highest since Aug. 17. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.

Retail Slump

A gauge of retailers in the S&P 500 declined 1.9 percent after 70 percent of merchants reported October sales that fell short of analysts' projections, based on estimates compiled by Retail Metrics LLC.

Wal-Mart Stores Inc. retreated 61 cents to $43.32. The world's largest retailer said October sales rose 0.4 percent, trailing analysts' estimates, after promoting discounted items for the holidays.

Macy's Inc., the second-largest U.S. department-store chain, fell $1.04 to $28.87 after saying sales declined 1.5 percent in October, more than the 0.6 percent drop analysts estimated. J.C. Penney, the third-largest U.S. department-store chain, and Kohl's Corp., the fourth-largest, also reported unexpected declines in October same-store sales.

J.C. Penney lost $2.81 to $48.33. Kohl's tumbled $2.35 to $48.52.

Takeover Speculation

Stocks opened the day higher, boosted by takeover speculation in the metals industry, after BHP Billiton Ltd. said it bid for Rio Tinto Group in a deal that may become the biggest acquisition in history.

Rio's U.S.-traded shares rallied 22 percent to $437.13. BHP's U.S.-traded shares slipped $4.38 to $75.97.

Freeport-McMoRan Copper & Gold Inc., the world's second- largest copper producer, climbed $1.92 to $110.02. Other miners and metal makers also rallied before giving up their gains after Bernanke's remarks.

Alcoa Inc., the second-biggest aluminum company, dropped 10 cents to $37.30 after advancing as much as 5.2 percent. Newmont Mining Corp., the world's second-largest gold producer, added 11 cents to $54.32 after earlier climbing as much as 4 percent.