Fears Offset Upbeat Words

Stocks closed broadly lower Tuesday, unable to sustain Monday’s late rally despite relatively upbeat comments from Federal Reserve Chairman Alan Greenspan.

Meanwhile, the Fed chief’s assessment of the economy sent Treasury bond yields up sharply. But the dollar continued to languish.

On Wall Street, blue-chip shares continued to be the primary targets of sellers. The Dow Jones industrial average closed down 166.08 points, or 1.9%, at 8,473.11, after diving as much as 233 points in early trading, rallying almost back to even by midday, then sinking again in late trading.

The Standard & Poor’s 500 slid 16.99 points, or 1.9%, to 900.94, its lowest close since 1997.

The tech-dominated Nasdaq composite held up better than blue chips, as it has for the last week. Nasdaq slipped 7.36 points, or 0.5%, to 1,375.26. The index hit a five-year low of 1,346 last week.

The Dow plunged as much as 440 points Monday before recovering almost all of that decline by the close. The rebound raised hopes that the 2-year-old bear market had reached a “capitulation” phase that was shaking out investors who had been on the fence, paving the way for at least a near-term market bottom.

Greenspan, testifying before a Senate panel, painted a generally positive picture of the economy. But he warned that there will be continuing fallout from corporate scandals, and said he expects to see a lot of companies restating their earnings in the next month, ahead of the Securities and Exchange Commission’s Aug. 14 deadline for chief executives to certify their companies’ results.

So far, second-quarter earnings reports have been mixed. Investors have been expecting the average blue-chip company to report a modest profit increase for the quarter. Some banks on Tuesday reported robust gains, as did Nextel Communications.

But there also were some troubling reports. Machinery giant Caterpillar slid $2.19 to $43 after reporting lower earnings and cutting its 2002 estimate, citing weak capital spending by businesses.

Also, appliance makers Maytag and Whirlpool reported strong second-quarter earnings, but both warned that earnings would slow in the second half. Maytag sank $6.54 to $32.32, and Whirlpool slid $6.63 to $56.28.

“There’s more fear than fundamentals” in the market, said Thomas Garcia, who helps manage $2.5 billion for Thornburg Investment Management. “People are selling just in case earnings are weak and the [hoped-for] outlook isn’t there.”

Falling stocks outnumbered winners by 19 to 13 on the New York Stock Exchange, though losers and winners were nearly even on Nasdaq. Trading was heavy.

Analysts expressed disappointment that the market couldn’t advance after Monday’s dramatic turnaround.

“We need to get a powerful up day with great breadth” to make the case that a bottom has been reached, said Ed Nicoski, technical analyst at brokerage U.S. Bancorp Piper Jaffray in Minneapolis.

He said the market’s capitulation phase could be stretched out over a long period if mutual funds continue to face cash outflows, forcing fund managers to sell stocks.

Many analysts believe the selling pressure on blue-chip shares over the last week stems from mutual fund redemptions, as fund managers sell some of their most liquid stocks to raise cash.

In the Treasury bond market yields rose across the board Tuesday, responding to Greenspan. Analysts said the Fed chief’s tone reminded bond owners that the next major move for interest rates is likely to be up, if the economy continues to recover.

The yield on the two-year T-note rose to 2.61% from 2.54% Monday.

But higher yields didn’t help the dollar. The euro held at $1.01, its highest since February 2000, while the dollar fell to 116.04 yen from 116.31.

Among Tuesday’s highlights:

* Tech and telecom stocks gaining despite the broader market’s losses included: FreeMarkets, up $1.39 to $12; Dell Computer, up 71 cents to $26.19; and Juniper Networks, up 25 cents to $8.31.

But IBM fell $1.99 to $69.01; Oracle eased 16 cents to $9.99.

* Home builders’ shares were hit by profit-taking. KB Home fell $3.14 to 45.56, and Lennar lost $2.84 to $54.16.

* Among blue chips, Boeing rose $1.11 to $40.87 after analysts at Morgan Stanley and Deutsche Bank recommended the stock.

* Discount retailer Target fell $1.82 to $34.62 after saying weekly sales fell below its expectations. Other retail issues were weak, including Wal-Mart, down $3.56 to $49.88 even after saying healthy demand for household items and food has helped keep sales within its July growth forecasts.

Market Roundup, C6-7