Wall Street retreats from two-week rally

As Tomahawk land-attack cruise missiles smashed into Afghanistan yesterday on the second day of the US strike against the Taliban and Osama Bin Laden, investors on Wall Street took note and bought up shares in the maker of the weapons and other armament manufacturers.

But while defence stocks rose on the start of the military response to the attacks on the World Trade Centre four weeks ago, the possible negative effects of a long and uncertain anti-terrorism campaign on an economy already thought to be contracting, and renewed jitters about further terrorist attacks, dampened investors' appetite for other stocks.

Wall Street retreated from a two-week rally which had seen market indices rise more than 10 per cent following the three-year lows to which they plunged in the aftermath of the devastation at the World Trade Centre.

The Dow Jones index closed at 9,068.01 a fall of 51.76 or 0.57 per cent.

The Nasdaq Composite index closed up 0.66 at 1,605.96 a rise of 0.04 per cent. The Standard & Poor's index fell 9.72 to close at 1,061.66 a fall of 0.91 per cent.

Shares in Maryland-based Raytheon which makes the Tomahawk missiles shares rose $1.28 to $36.25, after hitting a 52-week high at $37.40, and Lockheed Martin, which builds the F-16 fighter jet and also manufactures ballistic missiles that may be launched from submarines, rose $1.42 to $49.15.

US defense stocks have made big gains since September 11th, with many adding more than 25 per cent to their prices. They were among the few gainers yesterday on a day overshadowed by the prospects of the worst quarterly corporate profits in a decade in the days ahead.

This week marks the beginning of the third-quarter earnings season, with companies lining up to report financial results and estimate how they will fare in the coming quarter.

Analysts predict third-quarter profits will fall an average of 21.3 per cent from the same period a year ago, according to Thomson Financial/First Call, the worst performance since second quarter 1991.

Markets had waited nearly a month for the military response and it was so heavily flagged by Washington and London that it had already been mostly factored into Wall Street calculations.

The Columbus Day holiday made for light trading volumes, and the bond market was closed. Bonds have soared recently as safe havens in time of uncertainty.

"This week, we're being deer in the headlights," said Mr Don Ross chief investment officer of National City.

"There's a lot of uncertainty and risk, and stock prices fall to reflect that." The slowdown in hotel and travel sectors hit hotel and entertainment stocks, including amusement-park operator Walt Disney and the Marriott hotel chain.

Among stocks doing well was Bruker Daltonics, a maker of equipment for the life sciences industry, which supplies the US government with devices that detect agents used in biological warfare.