Weak economic data spooks the market

NEW YORK » Wall Street retreated yesterday after most of the day's economic data showed weakness, including a report that manufacturing growth in October was the slowest in more than three years.

The Institute for Supply Management, a private research group, reported softness across the U.S. manufacturing sector. New orders, production and prices fell, while hiring was up. Treasurys rallied on the numbers and the dollar fell.

Data on the housing market also bolstered fears of an economic slowdown. Pending home sales for September, fell 1.1 percent, down 13.6 percent from a year earlier. September residential construction spending also fell 1.1 percent, the sixth month that construction spending dropped, the longest stretch of weakness in residential construction in more than a decade.

Before the manufacturing report's release, stocks were up on strong earnings from MasterCard Inc. and an upbeat forecast for private-sector jobs created in October.

That the indexes didn't fall harder is an indication "this market is in denial," said Rob Brown, chief investment officer of Genworth Financial Asset Management, an Encino, Calif.-based money manager with $4.7 billion under management. "It wants to focus on the positives and ignore the negatives."

The Dow Jones industrial average fell 49.71, or 0.41 percent, to 12,031.02.

Broader stock indicators also closed lower. The Standard & Poor's 500 index fell 10.13, or 0.74 percent, to 1,367.81, and the Nasdaq composite index fell 32.36, or 1.37 percent, to 2,334.35.

The difference between equity investors' sunny focus and bond investors' gloomy outlook widened. Bonds rose as debt investors bid up the possibility of a sharp economic downturn.

The yield on the 10-year Treasury fell to 4.57 percent from 4.61 percent late Tuesday. Bonds also rose sharply during Tuesday's session, with the yield on 10-year Treasuries falling from 4.67 to 4.61. The U.S. dollar was mostly higher against other major currencies. Gold prices rose.

There is still a fair amount of contrasting economic data, said Doug Johnston, head of U.S. trading at Canaccord Adams in Boston.

"There are a lot of warning signs, but if it were glaringly obvious, everyone would be on it," he said.

Falling bond yields, for instance, are helping keep interest rates low, a boon to homeowners with adjustable rate mortgages.

And commodities prices remain weak. Crude oil futures dropped yesterday; a barrel of light crude settled at $58.71, down 2 cents in trading on the New York Mercantile Exchange. Oil's July high was more than $78 a barrel.