Rise in jobless rate pushes stocks lower

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By Amy Baldwin
Associated Press

NEW YORK — Investors unnerved by a larger-than-expected jump in unemployment sent stocks lower today, taking profits from Wall Street's two days of rallies. But news of surprisingly strong growth in the nation's service sector helped offset the losses.

While economic data have been turning more positive, disappointments like the jobless rate prompt investors to question whether stock prices, earnings and the economy will recover in the second half of 2003. So far, however, the selloffs haven't been steep or long lasting, which analysts say points to investors' growing optimism.

The jobless report, "more than anything ... is a reason for the market to come down a little bit. I don't think it is going to cause a tremendous sell-off. It is going to be one of those figures that causes investors to sell on for a few hours or a few days before moving forward again," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati.

The Dow Jones industrial average ended a shortened trading session down 72.63, or 0.8 percent, at 9,070.21. The loss nearly halved the 157.40-point gain from the previous two sessions.

The broader market also retreated. The Nasdaq composite index fell 15.27, or 0.9 percent, to 1,663.46, following a two-day win of 55.93. The Standard & Poor's 500 index declined 8.05, or 0.8 percent, to 985.70, having advanced 19.25 in the past two days.

Still, the gauges ended the week higher because of the buying that took place Tuesday and yesterday. The Dow ended the week up 0.9 percent, while the Nasdaq climbed 2.4 percent and the S&P rose 1 percent.

Trading was light today ahead of the Independence Day weekend and ended three hours early. The market is closed tomorrow.

"People are in their vacation mode. What (trades) you are seeing is profit taking before the long weekend," said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

The Labor Department's report on June unemployment was a disappointment. The jobless rate spiked up to 6.4 percent last month, the highest level in more than nine years, or since April 1994, and the greatest since the Sept. 11 terror attacks. That surprised analysts who had forecast a rise to 6.2 percent from May's 6.1 percent rate.

The stock indexes briefly turned positive, however, after the Institute of Supply Management reported that its nonmanufacturing index rose to 60.6 in June, the best level since September 2000. Analysts were expecting a reading of 55 for the index, which measures activity in the service sector. Any reading above 50 indicates expansion in activity.

Since mid-March, investors have been buying up stocks on the growing belief that such a recovery will happen and as a result the market's major stock had a strong second quarter — the best quarter since 1998 for the Standard & Poor's 500 index.

Panera Bread fell 45 cents to $42.25 after BB&T Capital Markets downgraded the restaurant company to "hold" from "buy."

AT&T declined 46 cents to $19.42 after S&P cut the company's credit rating by one notch to triple-B.