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Was the US worried about Merck ? Yep!

  1. AlphaCenturian

    10,543 Posts.
    1
    Dow 9,274.90 -104.60 (-1.12%)
    Nasdaq 1,405.61 -42.75 (-2.95%)
    S&P 500 976.98 -12.05 (-1.22%)
    10-Yr Bond 4.812% +0.008

    NYSE Volume 1,513,780,000
    Nasdaq Volume 1,708,759,000
    Quote data provided by Reuters

    Monday July 8, 4:40 pm Eastern Time
    Reuters Business Report
    Stocks Drop as Merck Stirs Jitters
    By Elizabeth Lazarowitz

    NEW YORK (Reuters) - Stocks slumped on Monday, eroding a hefty rally at the end of last week, as questions about revenues booked by drug giant Merck & Co. (NYSE:MRK - News) reignited worries about Corporate America's integrity.

    Investors were bracing for the next big blowup after a string of scandals that rocked Wall Street, including the $3.85 billion accounting debacle that has pushed phone giant WorldCom Inc. (NasdaqNM:WCOME - News) to the brink of bankruptcy.

    "People are certainly waiting for the next shoe to drop," said Michael Vogelzang, president of Boston Advisors, Inc. "There's a fairly prevalent sense of, 'Who's going to be next, and which companies in my portfolio are going to have that problem?"'

    Stock investors cast a wary eye at Merck, which recorded revenue of more than $14 billion from its pharmacy-benefits subsidiary over three years that the unit never actually collected, according to a regulatory filing.

    "There's a question of the quality of numbers across the board," said Matt Holscher, head of Nasdaq trading at WR Hambrecht & Co. "Companies like WorldCom and Enron put up a red flag and people are having to discern between companies that have come to their numbers legitimately and those that haven't."

    More dour news on corporate profits from companies like Alcoa Inc. (NYSE:AA - News), the world's No. 1 aluminum producer, and utility company Allegheny Energy Inc. (NYSE:AYE - News) also tossed cold water on the market after a blazing rally on Friday.

    The Dow Jones industrial average (CBOT:^DJI - News) fell 104.6 points, or 1.12 percent, to 9,274.90, according to the latest available data, after having chalked up its biggest percentage gain in more than nine months on Friday. The tech-packed Nasdaq Composite Index (NasdaqSC:^IXIC - News) fell 42.75 points, or 2.95 percent, to 1,405.61, while the broad Standard & Poor's 500 (CBOE:^SPX - News) lost 12.05 points, or 1.22 percent, to 976.98.

    Merck, among the most active issues on the New York Stock Exchange, slipped $1.05, or 2 percent, to $47.81. The news weighed on the rest of the sector, and the American Stock Exchange's pharmaceutical index (AMEX:^DRG - News) fell 0.9 percent.

    Stocks had surged during Friday's holiday-shortened session on relief that the Fourth of July holiday passed without a major terror attack. Still, few Wall Street experts called the light-volume rally a decisive turning point in a market slammed to multiyear lows recently on nagging worries over corporate profits, questionable accounting and security issues.

    "Caution is the word of the day," said Peter Coolidge, senior equity trader at Brean Murray & Co. "Until confidence starts to build that there won't be any major surprises from large firms, it's problematic to the market, and it really makes it hard for any sustainable rally to take place."

    Accounting issues were in sharp focus on Monday, as former top executives at WorldCom refused to testify at a congressional hearing, and lawmakers called for prison time for those responsible for the multibillion-dollar accounting scandal.

    President Bush is scheduled to present new policies on Tuesday aimed at cracking down on boardroom misconduct, with criminal penalties for the worst offenders.

    But analysts say it will likely come as little comfort to investors.

    "We need to see some real honest to goodness earnings growth," Vogelzang said. "We need to see some vibrancy in American business, and we just don't see that."

    Dow component Alcoa said quarterly profits fell on weak prices due to sluggish demand from the manufacturing and aerospace industries. Alcoa fell 88 cents to $32.50.

    Investors also got more disappointing news from Allegheny Energy Inc. (NYSE:AYE - News), a utility company which warned profits would fall well short of forecasts because of a weak electricity market. Its shares fell $2.08, or 8 percent, to $23.95.

    Auto sector stocks lost ground after Morgan Stanley cut earnings forecasts for 2003 for sector giants General Motors (NYSE:GM - News) and Ford Motor Co. (NYSE:F - News) due to expectations of flat industry vehicle sales next year. GM fell 16 cents to $51.53, pressuring the Dow, and Ford lost 54 cents to $15.15.

    Software maker Mentor Graphics Corp. (NasdaqNM:MENT - News) fell 27 percent, or $3.73, to $10.24 after it said it will post a quarterly loss, compared with a year-ago profit, due to acquisition-related charges and softer-than-expected sales.

    Helping keep a floor under Nasdaq, Level 3 Communications Inc. (NasdaqNM:LVLT - News) skyrocketed 51 percent after it said billionaire Warren Buffett and two other investors have agreed to buy $500 million of Level 3 debt to allow the money-losing fiber-optic carrier to make acquisitions.

    Level 3 rose $1.47 to $4.36.

    Online auctioneer eBay Inc. (NasdaqNM:EBAY - News) took a hit after it said it would buy PayPal Inc. (NasdaqNM:PYPL - News) in a stock swap worth about $1.5 billion, bringing under its own roof the online payment system already used by many eBay customers.

    EBay also announced separately that its second-quarter earnings would be better than forecast because of strong growth in both its U.S. and international operations. Nevertheless, its shares slumped $4.31 to $56.24, while PayPal surged $1.61, or 8 percent, to $21.61.

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