Sagging consumer spend takes its toll on US stocks

Stocks tumbled to four-month lows on Wall Street yesterday, continuing a steep three-day descent amid a hotchpotch of bad news, falling profit expectations, and renewed fears of a lengthy slump.

The Dow Jones industrial average fell below the psychologically important 10,000 mark for the first time since April 12th, and the tech-heavy Nasdaq took its third pounding this week, dropping under 1,800 for the first time since April 9th.

The worst news for investors was a government report that consumer spending, the engine for two-thirds of the US economy, which has defied the slump up to now, slowed down in July.

The EU's new legal challenge to Microsoft sent shares of the software giant down, a major factor in the Wall Street sell-off. The EU has expanded its investigation to look into whether Microsoft is illegally tying its Media Player to its Windows operating system.

News before the opening that computer maker Sun Microsystems had lowered its revenue expectations also depressed the market, and sent Sun shares to a two-year low. The Palo Alto-based company, which employs 250 people in Dublin, said it faced losses after Japanese and European sales failed to meet expectations.

Another ominous report was issued by Dell Computers, the world's top PC maker which employs more than 5,000 workers at Limerick and Bray, Co Wicklow. Dell said it expected technology spending cutbacks in the Asia-Pacific region to continue and remained cautious on PC demand in months ahead.

Its rival Gateway has already announced a shutdown of its worldwide operations outside the US, with 900 job losses in Dublin.

Corning, the world's top fibre-optic cable maker, said it was cutting 1,000 jobs from its fibre unit due to slack demand for optical fibre and cable. The company also said overall market growth for optical fibre in 2001 will be significantly less than its prior forecast for a 15 per cent rise.

While the European Central Bank lowered interest rates - as Wall Street has been urging for months - the impact of the quarter point reduction was blunted by the announcement that further rate cuts were unlikely.

The US Commerce Department said yesterday that consumer spending rose just 0.1 of a percentage point during July, an unexpectedly weak showing given that Americans began receiving tax rebate checks last month. That followed the government's report on Wednesday that the gross domestic product rose at an annual rate of only 0.2 of a percentage point during the second quarter, its worst showing in eight years.

The personal saving rate rose to 2.5 per cent in July compared to 1 per cent in June.

The Dow Jones eventually closed down 171.32 points or 1.7 per cent at 9,919.58. The Nasdaq finished off 51.49, down 2.79 per cent, at 1,791.68.