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The Honolulu Advertiser

Posted at 11:48 a.m., Monday, July 18, 2005

Stocks fall on Citigroup earnings

Associated Press

NEW YORK — Wall Street's rally skidded to a halt today after weaker-than-expected earnings from Citigroup Inc. raised questions about other companies' second-quarter results.

With two weeks of earnings reports ahead, Citigroup's profits punctured some of the optimism that lifted stocks last week. The nation's largest financial institution said challenging market conditions, especially in its fixed-income trading, left its earnings 5 cents below Wall Street expectations.

"Citigroup got the market off to a bad start," said John C. Forelli, portfolio manager for Independence Investment LLC in Boston. "Investors are preprogrammed for companies to beat (earnings) expectations."

The price of oil fell $1 a barrel in morning trading after OPEC lowered its 2005 global demand forecast. A barrel of light, sweet crude oil settled at $57.32, down 77 cents, on the New York Mercantile Exchange.

The Dow Jones industrial average fell 65.84, or 0.62 percent, to 10,574.99.

Broader stock indicators also dropped. The Standard & Poor's 500 index fell 6.79, or 0.55 percent, to 1,221.13, and the Nasdaq composite index fell 11.91, or 0.6 percent, to 2,144.87.

Some analysts believed the market was due for a pullback.

"We're seeing some normal profit taking that comes after the nice run we've had since May," said Janet Engels, senior vice president, director of the Private Client research group at RBC Dain Rauscher.

Although earnings are dominating the market this week, traders are also waiting for Federal Reserve Chairman Alan Greenspan to deliver his much-anticipated semiannual testimony on monetary policy before Congress Wednesday and Thursday.

In a letter to Congress dated July 11 and reported by Dow Jones, the Fed chairman said the economy is dealing "pretty well" with high energy prices. Analysts expect Greenspan to stress that the economy continues to show solid gains and inflation remains subdued. He is not expected to hint that the Fed will pause in hiking interest rates.

"The market is trying to figure out what to focus on," said Forelli. "Some days they focus on the high price of oil and the Fed continuing to raise rates, other days they focus on strong earnings reports and the Fed being close to being done."

Bonds dropped sharply on news of Greenspan's letter, with the yield on the 10-year Treasury note rising to 4.22 percent from 4.17 percent late Friday. The U.S. dollar was down against the euro. Gold prices were flat.

In stocks, Citigroup fell $1.42 to $45. Its disappointing earnings contrasted with those of Bank of America Corp., which released results that beat analysts' expectations by 5 cents a share. But Bank of America fell 90 cents to $45.08 as investors focused on declining profit margins from the company's loans.

International Business Machines Corp. announced second-quarter earnings today that surpassed forecasts, thanks to better sales from its services division. The company reported its earnings after the close of regular trading. Its stock fell 57 cents to close at $81.81; in extended trading after the announcement, it rose $3.32 to $85.13.

Earnings for MBNA Corp., the world's largest credit card issuer, beat analysts expectations, but the company said a bulk of its cash volume growth for the quarter came from new cards with low introductory rates that could reduce future margins. MBNA fell 37 cents to $25.85.

Tobacco stocks fell after the Justice Department asked the Supreme Court to let it seek $280 billion in past profits from cigarette makers. Altria Group Inc. dropped 74 cents to $65.91; British American Tobacco PLC fell 17 cents to $37.58 and Imperial Tobacco Group PLC fell 44 cents to $51.67.

Guidant Corp. warned physicians that replacements might be needed for nine pacemaker models made between 1997 and 2000, of which some 28,000 remain implanted in patients worldwide. The announcement was the latest bad news from Guidant, which last month recalled almost 109,000 implanted defibrillators. Its stock fell $2.10 to $67.31.

Scholastic Corp. said a record 6.9 million new Harry Potter books sold in the first 24 hours of U.S. sales. Sales for the sixth installment of the fantasy series easily outpaced those for Potter V. Scholastic rose 28 cents to $37.34.

Whirlpool Corp. offered to buy fellow appliance maker Maytag Corp. for $1.37 billion in cash and stock, topping an earlier offer Maytag accepted from an investment group. Whirlpool's offer of $17 per share represents a 21 percent premium over the offer from Triton Acquisition Holding Co. Maytag said its directors would consider Whirlpool's bid, but had not changed their recommendation for the previous deal. Whirlpool rose $3.32 to $73.31. Maytag rose $2.03 to $17.48.

The Russell 2000 index of smaller companies fell 5.18, or 0.78 percent, to 658.56.

Declining issues led advancers roughly 3 to 2 on the New York Stock Exchange, where volume was 1.20 billion shares, down from 1.32 billion Friday.

Overseas, Japan's Nikkei stock average fell 0.05 percent. Britain's FTSE 100 was down 0.32 percent, Germany's DAX index was up 0.14 percent, and France's CAC-40 was down 0.24 percent.