updated 1/12/2005 9:20:19 AM ET 2005-01-12T14:20:19

Stocks sagged Tuesday, as a disappointing sales forecast from Advanced Micro Devices Inc. sparked pessimism about semiconductor issues, putting buyers on the run.

Major Market Indices

The prospect of flagging revenues and profits in the chip sector did little to cheer investors following a weak start to the fourth-quarter earnings season. Less-than-stellar results from Alcoa Inc. and Genentech Inc. — the first two major companies to report — inspired little conviction.

“There’s a sense that nobody wants to buy right now. It’s earnings week, the numbers have been choppy at best ... I think people are just waiting to see how things shape up,” said Michael Murphy, head trader at Wachovia Securities in Baltimore. “I’m not seeing a lot of selling, it’s more a case where people have their wallets on their hip. There’s no urgency.”

The Dow Jones industrial average was down 64.81 points, or 0.6 percent, at the close of trading, while the broader Standard & Poor’s 500-stock index was down 7.26 points, or 0.6 percent. The Nasdaq composite index dropped 17.42 points, or 0.8 percent.

Despite the losses, analysts weren’t overly alarmed by the day’s trading, or the fact that the major indexes are all down for the year — traditionally a negative indicator for Wall Street. Market fundamentals remain strong, and there have been enough exceptions to January’s so-called “early warning” system that it’s reasonable to question its accuracy, said Richard A. Dickson, senior market strategist at Lowry’s Research Reports in Palm Beach, Fla.

“I think the jury is still out as far as which way this thing is going to go. We think the correction has further to run, how far I have no idea,” Dickson said. “But once this correction runs its course, we think then the market runs higher again. We’re positive for the market on the year.”

The fact that investors apparently have factored so much bad news into stocks so early in the earnings season may work in the market’s favor, Dickson added. “There seems to me to be mostly room for surprise to the upside,” he said.

That didn’t seem to be the case Tuesday, as Advanced Micro Devices sank 26 percent, or $5.27, to $14.86, following the chip maker’s warning that its fourth-quarter operating income would be “down significantly” from the third quarter. Several investment firms, including Lehman Brothers and Piper Jaffray, cut their ratings after the company issued its forecast late Monday.

The news weighed on other stocks, with AMD rival and Dow component Intel Corp. shedding 34 cents to $22.54. Intel was to report earnings after the close of Tuesday’s session.

Also on the Dow, leading aluminum producer Alcoa declined 82 cents to $29.65 after missing Wall Street profit forecasts by 2 cents per share. The company blamed higher commodity prices and the weak dollar for an 8 percent drop in net income.

Genentech slumped 6.8 percent, or $3.73, to $50.70, after reporting profits that missed analysts’ estimates by a penny per share. Investors were disappointed with sales of the company’s cancer drug Avastin, which fell short of forecasts.

Technology consulting firm Unisys Corp. tumbled 56 cents to $8.75 after slashing its profit forecast for the fourth quarter. The company now expects a loss of 7 to 10 cents per share, compared with earlier forecasts for profits of 27 cents to 31 cents per share. Management blamed one-time charges related to an outsourcing operation.

Dow component Hewlett Packard Co. fell 76 cents to $20.05 after Morgan Stanley downgraded it to “underweight” from “equal weight,” citing supply chain problems and stiff competition from Dell Inc. Dell was up 11 cents at $41.08.

Overseas, Japan’s Nikkei stock average rose 0.93 percent. In Europe, Britain’s FTSE 100 closed down 0.45 percent, France’s CAC-40 lost 0.74 percent and Germany’s DAX index declined 1.15 percent.

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