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Wall Street slammed by Google, rate hike fear

A mixed picture of the economy sent stocks tumbling Tuesday, with investors unnerved by weakness in home sales, consumer confidence and manufacturing. An upward revision in economic growth raised fears of higher interest rates, while a disappointing outlook from Google intensified the selling.
/ Source: The Associated Press

A mixed economic picture sent stocks tumbling Tuesday, with the Dow Jones industrial average falling 104 points, as investors were unnerved by weakness in home sales, consumer confidence and manufacturing. An upward revision in economic growth raised worries about higher interest rates.

The latest GDP data show the economy grew at an annual rate of 1.6 percent in the final quarter of 2005, much better than the 1.1 percent the Commerce Department initially estimated and beating the 1.5 percent economists predicted. GDP is the broadest measure of the economy’s performance — an indicator of whether the economy is growing fast enough to require interest rate hikes.

The day’s other data showed soft economic spots. Sales of existing homes fell for the fifth consecutive month January, exacerbating some investors’ concerns that a fall in homes sales and refinancings could choke off a source of wealth for consumers, slowing their spending.

Consumer confidence numbers reinforced that worry, dropping below analysts’ estimates in February, according to The Conference Board, a New York-based private research group. And a survey of Chicago-area purchasing managers fell unexpectedly; it’s seen as a precursor of national manufacturing figures due to be released Wednesday.

“The GDP [gross domestic product] upgrade could put more pressure on the Fed,” said Jack A. Ablin, chief investment officer at Harris Private Bank. “At the same time, we’re losing ground with the consumer ... From the perspective of today’s market, it’s a one-two punch.”

The Dow Jones industrial average finished the day down 104.14 points, or 0.94 percent, and closed the month of February with its best two-month rise since 1998. The broader Standard & Poor’s 500-stock index fell 13.46 points, or 1.04 percent, Tuesday, while the technology-rich Nasdaq composite index dropped 25.79 points, or 1.12 percent, hurt by a sharp decline in shares of Google Inc.

Google tumbled $27.76 to $362.62 after Chief Financial Officer George Reyes told investors that growth at the online search leader was slowing. Reyes told investors at a Merrill Lynch conference that the company would have to find new ways to boost revenues.

Crude oil futures rose. A barrel of light crude was quoted at $61.41, up 41 cents in trading on the New York Mercantile Exchange. Bonds edged higher, with the yield on the 10-year Treasury note falling to 4.55 percent from 4.59 percent late Monday.

With scant earnings reports and few Federal Reserve speeches, economic data should continue to dominate the week, said Alexander Paris, economist and market analyst for Chicago-based Barrington Research.

“The problem is, investors have been going back and forth,” about economic data, he said, pushing stocks higher on weak economic data one day, then lower on poor data another day. “Sometimes they think a good economic report is good, other times they think it’s bad.”

Another hurdle stock bulls face is “resistance levels.” As the Dow and S&P 500 flirted with 4 1/2 year highs, those highs have become, effectively, a ceiling for stock prices, with investors selling off their holdings when the indexes neared those highs.

Stocks ended February mixed. The Dow gained 128.55, or 1.18 percent; the S&P rose 0.60, or 0.05 percent; and the Nasdaq lost 24.43, or 1.06 percent. So far in 2006, the Dow is up 3.55 percent, the S&P is up 3.67 percent, and the Nasdaq is up 4.62 percent.

Office supply retailer Staples Inc. rose $1.47 to $24.54 after its fourth-quarter profit rose 15 percent, beating Wall Street expectations by a penny.

Online closeout retailer Inc. fell 57 cents to $22.50 after it said it would restate previously reported financial results going back to 2002 to correct how it accounted for freight costs. The correction will lower the net loss reported in each affected annual period, said, while boosting inventory as of Sept. 30, 2005, by $3.5 million.

BJ’s Wholesale Club Inc., the third-largest U.S. warehouse club retailer, rose 46 cents to $31.66 after it said profit in the latest quarter rose nearly 10 percent, helped by strong gasoline sales.

Overseas, Japan’s Nikkei stock average rose for the fourth straight session, edging 0.08 percent higher. In Europe, Britain’s FTSE 100 fell 1.44 percent, Germany’s DAX index dropped 2.01 percent and France’s CAC-40 lost 1.58 percent.