Nasdaq smashed o/night down 4%

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    Not a happy start to the US New Financial Year particularly amongst tech stocks

    Dow 9,109.79 -133.47 (-1.44%)
    Nasdaq 1,403.80 -59.41 (-4.06%)
    S&P 500 968.65 -21.16 (-2.14%)

    10-Yr Bond 4.815% -0.009
    NYSE Volume 1,423,281,000
    Nasdaq Volume 2,976,615,000
    Quote data provided by Reuters

    Reuters Business Report
    Stocks Tumble; Nasdaq at Five-Year Low

    By Chelsea Emery

    NEW YORK (Reuters) - Wall Street began the third quarter on a dour note on Monday, with the Nasdaq composite index dropping to a five-year low as the multibillion-dollar accounting scandal surrounding former high-flying phone company WorldCom Inc. (NasdaqNM:WCOME - News) deepened.

    The Nasdaq (NasdaqSC:^IXIC - News) dropped through the Sept. 21 low it touched after the attacks on the United States, and kept falling to close at a level unseen since June 10, 1997.

    Wall Street's accounting woes, along with jitters about political turmoil overseas and worries that the July 4 holiday may bring another attack on the United States, prompted investors to shy away.

    "People are nervous about July 4th, the next WorldCom ... just pick your poison," said Donna Van Vlack, director of trading at Brandywine Asset Management. "It's darn hairy out there."

    A surprisingly strong forecast from 3M Co. (NYSE:MMM - News) did little to underpin confidence as investors stayed on the sidelines in a shortened trading week. Major stock markets will be closed on Thursday for the July 4 holiday and close early on Friday.

    "It's called a bear market," said Dan McMahon, head of block trading for CIBC World Markets. "The concerns are that the economic recovery is not as robust as people had hoped for and there's still a huge cloud of pessimism over accounting issues. People are waiting for the other shoe to drop. It's also a holiday week so volatility is exacerbated."

    The technology-laced Nasdaq Composite Index (NasdaqSC:^IXIC - News) was down 59.45 points, or 4.06 percent, at 1,403.76, according to the latest available figures. That was its lowest close since June 10, 1997, when the index closed at 1,401.60. Last Sept. 21, the index closed at 1,423.19.

    The Dow Jones industrial average (CBOT:^DJI - News) was down 133.47 points, or 1.44 percent, at 9,109.79. The broader Standard & Poor's 500 Index (CBOE:^SPX - News) was down 21.17 points, or 2.14 percent, at 968.64.

    Breadth was negative, with about two stocks falling for every one that gained on Nasdaq and the New York Stock Exchange. About 2.97 billion shares traded on Nasdaq, with trading in WorldCom contributing about half of that volume. About 1.42 billion shares changed hands on the Big Board.

    WorldCom, which said it faces delisting from the Nasdaq on July 5 and received notice it has defaulted on some loans, fell 93 percent, or 77 cents, to 6 cents.

    More than 1.5 billion shares of WorldCom were traded, breaking the Nasdaq's record for most shares traded in an individual issue on a single day -- last broken by WorldCom itself in May.

    Trading had been halted since last week after WorldCom's admission that it did not properly account for $3.85 billion in expenses.

    The telecoms firm also said its audit committee is reviewing its financial records for 1999 through 2001.

    "It's just a question of what industry is the next one to get a major hit," said Adam Tracy, head of listed trading at Thomas Weisel Partners. "Accounting really worries a lot of people."

    Computer services company EDS Corp. (NYSE:EDS - News) slumped 18 percent after it said it expects WorldCom, an important customer, to account for $160 million to $175 million of EDS revenue and 3 cents to 4 cents of EDS earnings per share in both the third and fourth quarters.

    Separately, EDS said it ended talks with consumer products giant Procter & Gamble Co. (NYSE:PG - News) related to a potential contract said to be worth about $1 billion.

    EDS fell $6.70, or 18 percent, to $30.45. Procter & Gamble gained 73 cents to $90.03.

    Diversified manufacturer 3M helped limit losses in the blue-chip Dow index with a gain of $4.40, or 3.6 percent, to $127.40 after saying second-quarter earnings will be higher than expected due to improved sales.

    Johnson & Johnson (NYSE:JNJ - News) and partner Alkermes Inc. (NasdaqNM:ALKS - News) took a hit after the U.S. Food and Drug Administration rejected their bid to market a long-acting, injectable version of the lucrative schizophrenia treatment Risperdal, the companies said. Johnson & Johnson fell $1.76 to $50.50, while Alkermes lost 68 percent, down $10.86 at $5.15.

    Biotech shares like Alkermes were a major drag on the Nasdaq market. The Nasdaq biotechnology index (NasdaqSC:^NBI - News) fell nearly 9 percent. Sector leader Amgen Inc. (NasdaqNM:AMGN - News) was down $3.52, or 8 percent, to $38.36.

    One bright spot, though, was Tyco International Ltd. (NYSE:TYC - News), which topped the list of the New York Stock Exchange's most actively traded stocks. Investors were betting the public share sale of CIT, Tyco's finance arm, would help the cash-strapped company meet its urgent debt payments. Tyco closed up 24 cents to $13.75. After the bell, Tyco raised a less-than-expected $4.6 billion from the sale of CIT.

    Investment bank Merrill Lynch also fanned investors' worries after it cut its year-end targets for the S&P 500, reflecting lower expectations for corporate earnings. Merrill cut its S&P 500 target to 1,050 points from 1,200.

    Trading volumes are expected to thin as investors slip out to begin their July 4 holiday.

    "By the time you get to Wednesday, everybody will be sliding out," said Larry Wachtel, market analyst at Prudential Securities. "The following week, when the second-quarter earnings actually start to arrive -- that's the moment of truth for the market, but this is really kind of a throw-away week."

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