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msnbc.com
updated 11/22/2004 9:06:58 AM ET 2004-11-22T14:06:58

Wall Street finished a losing week with a steep loss Friday, as investors sent stock prices tumbling in the face of rising crude oil prices and Federal Reserve Chairman Alan Greenspan’s warning about the nation’s swelling trade deficit.

Major Market Indices

In an unusually frank assessment of the nation’s trade imbalance and its effect on the U.S. economy, Greenspan told a banking conference in Germany Friday that although the economy has remained resilient thus far, if deficits continue to build and the U.S. dollar remains weak, it may be in some danger.

The thinking is that at some point a declining dollar could mean foreign investors suddenly lose interest in holding dollar-denominated investments, and that could lead them to unload their investments in U.S. stocks and bonds, sending their prices plunging and U.S. interest rates soaring.

Greenspan’s warning weighed on the dollar, which extended its recent slide against other major world currencies Friday. And shares of financial firms and home builders, which would be hurt most by higher interest rates, fell. Dow component Citigroup, the world’s largest financial services firm, slid 1.7 percent to $45.15, while homebuilder Lennar fell 3.1 percent to $46.36.

Friday’s sell-off reflected mounting concern on Wall Street that a much steeper decline in the dollar may force the Fed to be more aggressive in raising interest rates, which in turn could damage economic growth and U.S. corporate profits.

But after pushing steadily higher since late October, some investors said stock indices were primed for a bout of profit-taking, and that traders simply used Greenspan’s comments as a convenient excuse to take some money off the table.

“Today is more of a blip on the screen,” said Stewart Freeman, chief equity strategist for A.G. Edwards. “We’re exiting a period of uncertainty with the elections and terrorism and worries about slowing profit growth, and I think we’re set up nicely to continue upward after this,” he added.

The Dow Jones industrial average finished Friday down 115.64 points, or 1.1 percent, while the broader Standard & Poor’s 500-stock index was off 13.21 points, or 1.1 percent. The tech-rich Nasdaq composite index fell 33.65 points, or 1.6 percent.

All three of the stock market’s major indices fell for the week, as investors took profits from a month-long rally that drove the Dow industrials to an eight-month high on Thursday. An options expiration this week, which can make trading choppy, may have contributed to the slide, analysts said.

Wall Street was also pressured by oil prices Friday, which rose in response to a U.S. government report that showed a drop in inventory for distillates such as heating oil — critical as winter approaches. A barrel of light crude settled at $48.44, or up $2.22 on the New York Mercantile Exchange.

Pharmaceutical stocks came under pressure, as investors digested Thursday’s Senate hearing over Merck’s arthritis drug Vioxx, which was pulled from the market due to a high risk of heart attack and stroke.

The Food and Drug Administration was roundly criticized for the way in which it approves drugs. Merck’s share price finished down 0.9 percent at $27.12, while rival Pfizer fell 1.9 percent to $27.23 and GlaxoSmithKline slid 1.9 percent to $42.77.

Shares of Nike fell 2.9 percent to $82.50 after the company announced that co-founder Phil Knight is stepping down as president and chief executive officer. Knight will remain chairman of the sports shoe giant, while William D. Perez, a top executive at privately held S.C. Johnson & Son, will take over as president and CEO.

Sirius Satellite Radio also announced new leadership, recruiting former Viacom president Mel Karmazin stepping in as its new CEO. Shares of Sirius jumped 9.5 percent to $5.17 on the news.

Oracle issued a deadline of midnight Friday for shareholders of PeopleSoft to respond to its $24 per share takeover bid. Oracle plans to abandon its offer unless more than half of PeopleSoft’s shares are tendered by the deadline. Oracle’s share price fell 1.7 percent to $12.75, while PeopleSoft’s stock price rose 1.1 percent and finished at $23.17.

Walt Disney’s share price rose 1.1 percent to $26.66 after it beat Wall Street’s profit expectations on Thursday by 6 cents per share. The media conglomerate said strong results from its ABC television network and cable channels offset a poor performance in its movie division. The company reiterated its 2005 guidance, but warned that the first quarter could be weak.

Overseas, Japan’s Nikkei stock average rose less than 0.01 percent Friday, but European stock markets slid, with Britain’s FTSE 100 closing down 0.9 percent, France’s CAC-40 losing 0.8 percent and Germany’s DAX index dropping 1.1 percent.

Reuters and the Associated Press contributed to this report.

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