Associated Press
07.26.2004

Increasing concern over the state of the economy and second-half earnings sent stocks lower Monday, as a pair of multibillion-dollar mergers couldn't counter a disappointing earnings season.

Healthcare and pharmaceutical stocks rose as Mylan Laboratories Inc. made a $4 billion all-stock offer for King Pharmaceuticals Inc. Financial stocks also moved slightly higher as Spanish bank Banco Santander offered $15.3 billion for British mortgage lender Abbey National.

Trading on Wall Street remained lackluster, however, as investors awaited earnings reports later in the week from Aetna Inc., Boeing Co., Exxon Mobil Corp., Time Warner Inc., and Verizon Communications. Even more importantly, investors were waiting for more economic data to help determine whether the economy's slowdown in June was transitory - or a sign of things to come.

"This is much more than the usual summer doldrums. There's a message coming from the market, here," said Hugh Johnson, chief investment officer at First Albany Corp. "If I were to simplify that message, it's that the economy and earnings in the third and fourth quarter won't be as strong as we expected."

In late morning trading, the Dow Jones industrial average fell 5.24, or nearly flat, to 9,956.98.

Broader stock indicators were narrowly lower. The Standard & Poor's 500 index was down 1.74, or 0.2 percent, at 1,084.46, and the Nasdaq composite index lost 4.17, or 0.2 percent, to 1,844.92.

With more than half the S&P 500 companies reporting, more than two-thirds have exceeded their estimates for second quarter earnings. But with a number of major corporations lowering their outlooks for the rest of the year and warning of lower profits to come, the good earnings reports have been overshadowed.

Even new strength in the housing sector was not enough to rouse buyers. Existing home sales rose 2.1 percent to a new record in June, according to the National Association of Realtors, as home buyers rushed to lock in low interest rates.

Earnings at Mylan Labs were flat compared to a year ago, and the company missed estimates by 2 cents per share. That, combined with the offer for King, sent the stock falling $2.66 to $15.85. King surged $2.79, or 27 percent, to $13.16.

Citigroup fell 35 cents to $43.96 after the financial giant was mentioned as a potential alternative buyer for Abbey National. Other financial stocks were mixed, with J.P. Morgan Chase & Co. down 10 cents at $36.43 and Bank of America Corp. up a penny at $84.87.

BellSouth Corp. was up 67 cents at $26.57 after it announced a 5 percent rise in profits on flat revenues for the second quarter, beating Wall Street expectations by a penny.

International Paper Co. rose 51 cents to $42.82 after exceeding estimates by 3 cents per share. The company said increasing materials and transportation costs could affect future earnings, however.

Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume came to 363.58 million shares, compared with 395.99 million at the same point on Friday.

The Russell 2000 index of smaller companies was down 1.08, or 0.2 percent, at 538.15.

Overseas, Japan's Nikkei stock average fell 0.3 percent. In afternoon trading, Britain's FTSE 100 was down 0.6 percent, Germany's DAX index dropped 0.6 percent, and France's CAC-40 slipped 0.5 percent.

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