Dow Finishes Week Below 10,000 LevelThe Dow...

Dow Finishes Week Below 10,000 Level

The Dow Jones industrial average fell below 10,000 on Friday, and the tech-dominated Nasdaq index plunged to its lowest level since October.

Analysts cited a continuing combination of factors, including mildly disappointing earnings, concerns about the economy, the November election, stubbornly high oil prices and the summer doldrums.

The three major indexes ended the week lower for the fourth straight week, as investors sold stocks across all sectors and industries, with technology and consumer staples taking the brunt of the sell-off.

The Dow Jones industrials ended the week down 177.56, or 1.8%, at 9,962.22. The S&P; 500 index lost 15.07, or 1.4%, to close at 1,086.20. Nasdaq dropped 34.06, or 1.8%, to 1,849.09.

Federal Reserve Chairman Alan Greenspan told Congress last week that he was likely to continue raising interest rates to keep inflation in check.

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AT&T; Drops Out of Local Phone Business

AT&T; Corp. said it would stop marketing residential service, claiming it couldn’t compete against the local phone companies it once owned.

The company said it would continue to serve its 35 million residential customers but would stop spending an estimated $500 million a year to attract new ones. It will focus instead on more profitable corporate and government clients.

The financial forces driving the decision were apparent in AT&T;’s second-quarter results. Profit fell 80% to $103 million, or 14 cents a share, from $536 million, or 68 cents, last year. Sales fell to $7.6 billion from $8.8 billion.

Central to the decision was a court ruling this year that threw out key aspects of phone competition rules. The rules had required local phone firms to lease their lines to rivals like AT&T; at regulated wholesale rates.

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A Split Decision for Anthem-WellPoint Deal

California Insurance Commissioner John Garamendi blocked a portion of Anthem Inc.’s planned acquisition of WellPoint Health Networks Inc., a move likely to throw the $17.5-billion union into court.

Garamendi’s rejection of the transfer of a WellPoint subsidiary came only hours after the state Department of Managed Health Care had cleared the way for Anthem to acquire WellPoint’s Blue Cross of California operation, which represents 90% of the Thousand Oaks company’s California business.

WellPoint Chief Executive Leonard Schaeffer said the companies had agreed to all of Garamendi’s demands, including investments of as much as $465 million over 20 years in improving healthcare for rural and poor Californians.

Garamendi said he based his decision on his authority under California’s insurance code to deny any major change in an insurer he oversees that would be unfair, prejudicial or unreasonable to policyholders. This deal is all three, he said.

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DreamWorks Plans to Spin Off Animation Unit

DreamWorks Studios, created by moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen, revealed plans to spin off its computer animation factory to the public.

The move by the entertainment company behind the lucrative “Shrek” franchise would provide a way to reap needed cash through the sale of as much as $650 million in common stock. It also would financially fortify the company to compete against its main rivals, Pixar Animation Studios and Walt Disney Co.

The proposed public offering underscores how computer animation has become DreamWorks’ most valuable asset.

Katzenberg and Geffen would control the animation studio through a special class of voting shares, according to a Securities and Exchange Commission filing. DreamWorks representatives would not comment, citing SEC restrictions on discussing public offerings in advance.

The public stock offering of DreamWorks Animation Inc. is expected in the fall.

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Microsoft to Pay Record $32 Billion in Dividends

Microsoft Corp. announced a one-time dividend totaling $32 billion -- the largest in history. The $3-a-share payout aims to blunt investor criticism that the software maker was sitting on a cash hoard of $56 billion.

Microsoft plans to double its regular dividend to 8 cents a quarter and buy back $30 billion of stock in the next four years.

The $32 billion is a record. But there have been bigger per-share payouts -- Metro-Goldwyn-Mayer Inc., for instance, paid $8 a share in May.

Microsoft Chairman Bill Gates, the company’s largest shareholder, and Chief Executive Steve Ballmer would be the largest individual beneficiaries of the special dividend, which requires shareholder approval. Gates said he would donate his $3-billion payout to his charitable Gates Foundation.

The special dividend would be paid Dec. 2 to shareholders of record on Nov. 17.

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Metabolife Faces Federal Charges in Ephedra Case

A federal grand jury has indicted Metabolife International Inc. and its founder on charges of lying to the Food and Drug Administration about the dangers of a diet supplement containing the potent stimulant ephedra.

Metabolife and Michael J. Ellis, founder of the San Diego company, each were indicted on six counts of making false statements and two counts of obstructing government efforts to regulate supplements made by the company with now-banned ephedra, the U.S. attorney’s office in San Diego said.

Ephedra has been blamed for heart attacks, strokes and at least 155 deaths. An FDA ban on ephedra took effect in April.

Prosecutors allege that Metabolife and Ellis made a series of false statements in letters to the FDA in 1998 and 1999, including that the company had a “claims-free history” and that “Metabolife has never been made aware of any adverse health events by consumers of its products.”

Attorney Steve Mansfield, who is representing the defendants, described the indictment as “baseless.” “We will vigorously contest each and every allegation,” Mansfield said.

Ellis is scheduled to be arraigned in federal court on Tuesday.

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EBay Profit Jumps, but Sales Gains May Slow

EBay Inc. reported that its second-quarter profit more than doubled on the strength of international expansion but offered evidence that the online auction business it pioneered was maturing after nearly a decade of vigorous growth.

As the company becomes more mainstream, executives said, it’s starting to more closely mirror the seasonal dynamics of the offline retail world.

They still expect sharp growth near the end of the year, which includes the crucial holiday shopping months. But in the meantime, they predicted, third-quarter revenue will be slightly lower than in the second quarter.

The San Jose company said net income in the second quarter jumped to $190 million, or 28 cents a share, from $92 million, or 14 cents a share, a year earlier.

Sales rose 52% to $773 million from $509 million.

EBay said its third-quarter revenue could reach $770 million, falling $7 million short of analysts’ consensus estimates. Its earnings forecast of 25 cents a share, not including one-time charges, fell 2 cents shy of Wall Street’s projections.

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Charles Schwab Ousts Its Chief Executive

Struggling to find a viable growth strategy in the brokerage business, Charles Schwab Corp. dumped its chief executive and gave the helm back to its namesake founder.

The surprise move raised new questions about the San Francisco company’s efforts in recent years to diversify its operations beyond the discount brokerage business it pioneered 30 years ago.

Schwab said CEO David S. Pottruck, 55, had quit and was immediately succeeded by Charles R. Schwab, 66, who founded the firm in 1971 and has remained chairman since retiring as co-CEO a year ago.

The company announced Pottruck’s ouster as it reported that second-quarter profit fell 10% from a year earlier, hurt by a drop in investors’ trading.

Pottruck, who has spent most of his 20-year career at the brokerage firm as Charles Schwab’s right-hand man, said in a statement that he accepted “the board’s decision that it’s time for me to step aside.”

The company said Charles Schwab would remain CEO indefinitely.

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Consultant Calls Shell Plant Financially Sound

The Bakersfield refinery slated for closure by Shell Oil Co. is financially sound and an attractive asset for potential buyers, contrary to the oil company’s own assessments, a consultant hired by the state said.

Industry expert Malcolm Turner, retained by Atty. Gen. Bill Lockyer to provide an opinion on the refinery’s outlook, also said his consulting firm disagreed with Shell’s reasons for planning to shutter the facility Oct. 1.

“There are parties interested in buying it.... There are parties that would be successful operating it as an independent refinery,” Turner said.

Turner stressed that his conclusions were preliminary, but he said they were unlikely to change before his firm, Houston-based Turner Mason & Co., submits its report to the state.

A Shell spokesman said the company had not heard about Turner’s conclusions. But he said, “We continue to stand by our conclusion that the small, inefficient, landlocked Bakersfield refinery can no longer compete and is economically unviable going forward.”

For a preview of this week’s business news, please see Monday’s Business section.