by Tim Paradis
The Associated Press
The latest durable goods report is giving the stock market new reasons to worry about the economy.
Weaker-than-expected demand at a Treasury bond auction also weighed on stocks.
Stocks fell Wednesday after the Commerce Department said orders to U.S. factories for big-ticket manufactured goods dropped an unexpectedly steep 2.5 percent in June, the latest sign that the economy could remain troubled for some time. The market’s July rally has been on hold since Friday as investors look for clues about the economy’s direction.
The drop in orders reflected the troubles in the auto industry and a sharp drop in demand for commercial aircraft. It was the largest slide in five months. Economists were expecting a decrease of 0.6 percent.
Russell Croft, portfolio manager at Croft Leominster Investment Management in Baltimore, cautioned against reading too much into one economic number because he expects readings will continue to come in mixed as the economy begins to recover.
"There’s a good economic number and then there’s a bad number and that’s probably what you’d expect at this juncture of the recession," he said. "Hopefully it’s two steps back and three steps forward."
In early afternoon trading, Dow Jones industrial average fell 57.51, or 0.6 percent, to 9,039.21. The blue chips had been down about 35 ahead of the auction results.
The broader Standard & Poor’s 500 index fell 7.91, or 0.8 percent, to 971.71, while the Nasdaq composite index slid 14.36, or 0.7 percent, to 1,961.15.
On Tuesday, stocks finished mixed after several corporate earnings reports and the Conference Board’s reading on consumer confidence fell short of expectations.
Bond prices fell after a government auction for five-year notes was weaker than expected. That raised concerns that Washington will have to offer investors higher interest rates on the debt it sells in the future. That could not only make it more expensive for the government to fund its economic recovery programs but could drive up borrowing costs for consumer loans like mortgages.
The yield on the benchmark 10-year Treasury, which moves opposite its price, rose to 3.71 percent from 3.69 percent late Tuesday.
Energy company stocks dragged on the overall market after crude inventories rose more than expected last week, according to a weekly Energy Department report. The rise prompted worries that weakness in the economy was curbing demand for energy.
Occidental Petroleum Corp. fell $2.91, or 4.1 percent, to $68.78, while Schlumberger Ltd. fell $2.16, or 4 percent, to $52.44.
Light, sweet crude fell $3.98 to $63.25 a barrel on the New York Mercantile Exchange.
Energy and materials stocks began the day lower after a drop in stocks in China. The main Shanghai index tumbled 5 percent as reports suggested that China’s two state-owned banks have been asked to limit their lending.
A slowdown in China’s economy would erode demand for a range of raw materials, including oil and metals.
In corporate news, Microsoft Corp. and Yahoo Inc. announced a 10-year deal that gives Microsoft access to the Internet’s second-largest search engine audience. Microsoft rose 3 cents to $23.50, while Yahoo fell $1.95, or 11.3 percent, to $15.27.
Media conglomerate Time Warner Inc. said its second-quarter profit fell 34 percent on lower revenue in the company’s publishing, movie and online properties. Its earnings topped estimates but revenue fell short of projections. The stocks rose 23 cents to $26.78.
Sprint Nextel Corp. fell 49 cents, or 10.7 percent, to $4.10 after its loss widened in the second quarter as revenue and subscribers continued to fall.
Investors have grown cautious after a two-week surge of 11 percent in major stock indexes that began when earnings reports were stronger than expected. A handful of disappointing earnings reports earlier in the week reminded investors that an economic recovery may still be far off.
The market will be looking for insights into the economy when the Federal Reserve releases its beige book report at 2 p.m. EDT. The report is a regional snapshot of economic activity.
About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 558.4 million shares compared with 622.4 million traded at the same point Tuesday.
The Russell 2000 index of smaller companies fell 3.63, or 0.7 percent, to 548.32.
The dollar was mixed against other major currencies, while gold prices fell.
Overseas, Japan’s Nikkei stock average rose 0.3 percent. In afternoon trading, Britain’s FTSE 100 rose 0.4 percent, Germany’s DAX index rose 1.9 percent, and France’s CAC-40 advanced 1 percent.