updated 12/8/2004 8:18:28 AM ET 2004-12-08T13:18:28

Stocks slumped Tuesday, as investors sifted through mixed economic data and rumors about big merger deals, including a report that consumer products giant Johnson & Johnson is in talks to purchase a leading medical device maker.

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Analysts said the lackluster trading was characteristic of the first part of December, when a lull often precedes an end-of-year rally. But there’s no guarantee the market will benefit from the so-called Santa Claus effect this year, as stocks already have posted a significant advance over the last two months and now appear somewhat overextended.

Wall Street “needs something to boost things along” said Larry Wachtel, market analyst at Wachovia Securities. “The probable deal ... is helpful ... but there’s nothing in the way of dramatic elements to drive you forward. I don’t see a lot of selling pressure. I don’t see a reason for the market to dump. But I just don’t see anything to drive it dramatically forward.”

The Dow Jones industrial average was down 106.48 points, or 1 percent, at the close of trading, while the broader Standard & Poor’s 500-stock index was off 13.18 points, or 1.1 percent. The Nasdaq composite index fell 36.59 points, or 1.7 percent.

Traders weren’t overly concerned by the slide in equities, predicting that if oil continues to decline, buyers will return to Wall Street. In addition, with many professional investors such as mutual fund managers logging gains for the year, there’s less threat of a more significant sell-off.

“I am not too concerned right now. I think the character of the market is in place, at least until the end of the year,” said Michael Murphy, head trader at Wachovia Securities in Baltimore. “I think there’s more of a risk to be out of the market than in the market at this point. And I think it’s going higher.”

Oil prices sank to a four-month low despite supply fears prompted by an attack on a U.S. consulate in Saudi Arabia and unrest in Nigeria. Futures of light, sweet crude declined $1.52 to close at $41.46 per barrel on the New York Mercantile Exchange. Meanwhile, the dollar struck a new all-time low against the euro.

The government reported that worker productivity grew at a 1.8 percent annual rate in the third quarter, the slowest pace in nearly two years. Some saw the deceleration as a sign that employers have squeezed as much efficiency out of their existing workers as they can, and may finally increase hiring to meet customer demand.

The Labor Department’s latest snapshot of productivity — the amount an employee produces for every hour of work — was lower than previously thought, and marked a sharp pullback from the 3.9 percent pace logged in the second quarter.

Johnson & Johnson sagged $1.42, or 2.3 percent, to $60.41, on reports the drug and health care products company is in advanced talks to buy Guidant Corp., a leading maker of devices to treat heart and circulatory illnesses. The New York Times, citing executives close to the negotiations, said the proposed deal was valued at more than $24 billion. Guidant surged $3.60, or 5.2 percent, to $72.35, on the news.

Colgate-Palmolive Co. soared $3.78, or 8.2 percent, to $50.07, after the maker of consumer products such as Ajax detergent, Irish Spring soap and Hill’s Science Diet pet foods, announced plans to cut its worldwide work force by about 12 percent and close one-third of its factories as part of a four-year plan to boost sales and profits.

International Business Machines Corp. was down $1.57 at $96.10 on reports that it was in talks to sell its personal computer business to China’s biggest computer maker. Hong Kong-listed Lenovo Group Ltd. issued a statement confirming that it was in talks with a large technology company, but did not reveal the name, saying negotiations were confidential. The Wall Street Journal, citing unidentified sources, reported that IBM and Lenovo plan to create a new company that would own IBM’s PC business, with Lenovo holding a majority stake.

Overseas, Japan’s Nikkei average slid 0.9 percent. In Europe, France’s CAC-40 added 0.5 percent, Britain’s FTSE 100 rose 0.1 percent and Germany’s DAX index was up 0.5 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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