Investors Take Profits After Early Rally Fades

Stocks shot higher at the opening Monday in reaction to Saddam Hussein’s capture, but it didn’t last. By the close of trading most major indexes were in the red as sellers took control.

The dollar also weakened further, hitting a new low against the euro, amid fresh concerns about foreigners’ willingness to buy U.S. government bonds.

Hussein’s capture was “a geopolitical event that gave us a nice, short-term blip, but it wasn’t the kind of news that would drive us to even loftier levels,” said Brian Williamson, an equity trader at Boston Co. Asset Management.

Wall Street figured to get a lift at the outset of trading, and it did: The Dow Jones industrial average rose as high as 10,139 in the first few minutes, up 97 points from Friday’s close.

That followed sharp gains in some Asian markets overnight as investors got their first chance to react to the Hussein news. Japan’s Nikkei 225 index, for example, rallied 3.2% to 10,490.77. European markets also closed higher, though modestly so.

But U.S. stocks quickly began to slide after the opening surge. By the close the Dow was off 19.34 points, or 0.2%, at 10,022.82.

Falling stocks outnumbered winners by 3 to 2 on the New York Stock Exchange and by more than 2 to 1 on Nasdaq, in active trading.

The Standard & Poor’s 500 index ended down 6.10 points, or 0.6%, at 1,068.04.

The technology-dominated Nasdaq composite index was hit harder, dropping 30.74 points, or 1.6%, to 1,918.26.

Indexes of smaller stocks were the worst performers. The Russell 2,000 index slid 12.34 points, or 2.3%, to 535.25.

Analysts said some investors were keen on taking profits by year’s end, after the market’s sharp advance since March. The Dow’s crossing of the 10,000 mark last week for the first time in 18 months may have been viewed as a sell signal by some, despite a generally upbeat mood about the economy’s prospects in 2004.

“It feels like people are looking to get a little bit more defensive going into the holidays and to protect their gains,” said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

The Dow is up 20.2% this year and the S&P; 500 is up 21.4%. Smaller stocks, particularly in the tech sector, have racked up even bigger gains. The Nasdaq index is up 43.6%; the Russell index is up 39.7%.

Traders said it didn’t help Monday that Wal-Mart Stores warned that its December sales probably would be at the lower end of its recent forecast. Wal-Mart fell $1.76 to $50.74 -- its lowest price since March -- and dragged down other retailers.

Federated Department Stores dropped $2.19 to $43.22, Target lost $1.65 to $37.12, Ross Stores slid $1.32 to $52.31 and Zale was off $1.45 to $51.55.

Semiconductor-related stocks led the tech sector lower. Microsemi tumbled $1.02 to $23, International Rectifier sank $2.35 to $48.76 and Xilinx fell $1.57 to $35.43.

Stocks of home builders, which have been volatile in recent weeks, were broadly lower. Lennar dropped $1.78 to $90.97 and Ryland slid $2.43 to $84.28.

On the plus side, some heavy-industry issues rallied. Ford Motor gained 56 cents to $14.28, U.S. Steel rose 83 cents to $31.25 and Navistar was up 74 cents to $44.52.

In other markets Monday, near-term gold futures ended down 20 cents at $409.20 an ounce after falling as low as $401.60 at the outset as stocks rallied. Oil prices edged higher.

The dollar hit another low against the euro, ending in New York at $1.23 compared with $1.229 on Friday.

The dollar’s decline accelerated after the Treasury Department said foreign investors bought a net $12 billion of U.S. government bonds in October, compared with an average of $32.1 billion in the previous five months.

Overall net foreign purchases of U.S. securities (including corporate bonds and stocks) totaled $27.7 billion in October, up from the five-year low of $4.2 billion in September. Still, the restrained appetite for government bonds raises questions about foreigners’ willingness to continue funding the record U.S. budget deficit.

Without bond demand from government central banks such as China’s, “it would spell the likelihood of a horrific dollar collapse,” Adam Myers, a currency strategist at Westpac Banking Corp., told Bloomberg News.

Treasury bond yields, however, rose only slightly Monday. The 10-year T-note ended at 4.26%, up from 4.24% on Friday.