Dow stocks slip as New Year rally fades

US stocks slipped last night as the three-day New Year rally fizzled amid nagging worries about falling earnings.

US stocks slipped last night as the three-day New Year rally fizzled amid nagging worries about falling earnings.

The US stock market's blazing rally from three-year lows, which hit last autumn after the September 11th attacks, has raised worries stock prices have outpaced earnings expectations.

Analysts expect an economic rebound in 2002, but they are still girding for a bleak fourth-quarter earnings season.

They expect corporate earnings to post a 22 per cent drop in the fourth quarter, making it the worst quarter since 1991 when the United States was going through its last recession, according to earnings tracking firm Thomson Financial/First Call.

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The technology-laced Nasdaq Composite Index fell 22.25 points, or 1.08 per cent, to 2,037.13 yesterday. The blue-chip Dow Jones industrial average dropped 62.69 points, or 0.6 per cent, to 10,197.05. The S&P 500 Index eased 7.61 points, or 0.65 per cent, to 1,164.90.

But Compaq rose after forecasting a quarterly profit on revenue of $8 billion rather than the loss seen earlier by the company, indicating the struggling PC industry experienced surprising holiday demand.

Circuit City Stores, the second largest US consumer electronics retailer, rallied $2.29 to $29.75. The company reported strong December sales and said fourth-quarter earnings would surpass the consensus Wall Street estimate.

In economic news, Federal Reserve Bank of Atlanta President Mr Jack Guynn said a rebound in economic growth might not arrive for another six months. More optimistic private economists say a recovery is already under way.

But Mr Guynn also said the Federal Reserve - even after 11 interest rate cuts last year - has room to reduce rates further. He said there were "hints" the economy was stabilising but it was too early to say it had turned the corner.