msnbc.com news services
updated 5/1/2007 7:09:23 AM ET 2007-05-01T11:09:23

Wall Street retreated Monday as investors, casting a wary eye toward upcoming economic data, cashed in some profits on the last trading day of April.

Major Market Indices

Investors did manage to send the Dow Jones industrial average to a new trading high before pulling money out of the market ahead of Tuesday’s manufacturing data from the Institute for Supply Management. On Monday, the report’s precursor, the Chicago Purchasing Managers’ index of manufacturing activity in the Midwest, came in weaker than expected.

The Dow surged more than 700 points in April thanks in large part to first-quarter earnings coming in stronger than analysts predicted. Quarterly profits released Monday by companies such as Verizon Communications, Wm. Wrigley Jr. Co., Kellogg Co. and RadioShack Corp. extended that trend.

Economic data on Monday was mixed. Investors were pleased by the Commerce Department’s report that core inflation, as measured by personal consumption spending, was up 2.1 percent for the past 12 months ending in March — lower than the 2.4 percent rise in the 12 months ending in February. If inflation eases, the Federal Reserve is more likely to cut interest rates.

But the data also showed personal spending increased only 0.3 percent. That, along with a slim gain in construction spending and the weak reading on Midwest manufacturing, caused some restraint among investors who are concerned about the economy slowing too quickly — which could eventually hurt corporate profits.

“What the market is always going to ask is, what have you done for me lately?” said Alan Gayle, senior investment strategist at Trusco Capital Management. “The good earnings news has at least to some degree been reflected in stock market prices — companies are going to have to continue generating these good numbers to see the market go higher.”

The Dow fell 58.03 points, or 0.44 percent, after reaching a new trading high of 13,162.06. The Dow chalked up its worst monthly performance since December 2003 Monday, and on Friday hit its 37th record close for the index since October.

Broader stock indicators fell further Monday, with investors tending toward larger, more established companies due to signs of a cooling economy.

The Standard & Poor’s 500-stock index fell 11.70 points, or 0.78 percent, while the Nasdaq composite index dropped 32.12 points, or 1.26 percent.

Bonds jumped on the data showing tame inflation and slow growth, which lower the chance of a rate hike. The yield on the benchmark 10-year Treasury note fell to 4.64 percent from 4.70 percent late Friday. Gold prices rose. The dollar fell to a new all-time low against the euro before recovering.

Fueling the end-of-month sell-off, the National Association of Purchasing Management-Chicago said its index of manufacturing activity was 52.9 in April, below the average estimate and down from a reading of 61.7 in March — its highest level in two years. A reading above 50 in the index indicates growth in Midwest manufacturing, while a reading below 50 suggests contraction.

Caution ahead of this week’s economic data ended up overshadowing strong earnings data Monday.

Verizon, one of the 30 Dow stocks, reported that its first-quarter profit fell 8.4 percent, but revenue rose 17 percent and the results beat predictions. Verizon rose 29 cents to $38.18.

RadioShack Corp. and Wm. Wrigley Jr. Co. also posted strong first-quarter profits. RadioShack rose $1.35, or 4.9 percent, to $29.07, while Wrigley jumped $3.83, or 7 percent, to $58.88.

Corporate growth has been better than expected but is in the single digits, which is slower than in recent quarters. That has allowed price-to-earnings ratios to rise, noted Jeffrey Kleintop, chief market strategist at LPL Financial Services, suggesting that stocks still have potential to rise further.

In other corporate news, German stock exchange operator Deutsche Boerse AG confirmed it has agreed to buy the U.S. options exchange International Securities Exchange Holdings for $2.8 billion in cash. ISE surged $20.97, or 45.9 percent, to $66.69.

Light, sweet crude fell 75 cents to settle at $65.71 per barrel on the New York Mercantile Exchange.

Overseas, Japanese markets were closed for a holiday. Britain’s FTSE 100 rose 0.48 percent, Germany’s DAX index rose 0.42 percent and France’s CAC-40 rose 0.49 percent.

Most Asian markets fell Monday as investors worried China may ramp up efforts to slow its booming economy after announcing new credit tightening measures. But Chinese markets hit record highs, driven by strong corporate earnings.

The Associated Press contributed to this report.

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