Wall Street calls in sick
after Merck profit warning

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By Lisa Singhania
Associated Press

NEW YORK >> An earnings warning from Merck sent stocks sliding today as Wall Street got another demonstration of how weak the business environment remains.

The news was a reminder that even sectors considered to be less risky in a struggling economy, such as health care, are still vulnerable.

"Merck is the type of company you don't expect to miss," said Rafael Tamargo, director of equity research at Wilmington Trust. "This shakes confidence a little bit."

The Dow Jones industrial average closed down 110.84 at 10,604.59, a 1 percent decline, ending a two-day winning streak.

The Nasdaq composite index was off 23.91 at 2,034.83, a nearly 1.2 percent drop. The Standard & Poor's 500 index fell 11.69 to 1,225.35, a loss of 0.9 percent. Both indicators had closed higher the last three sessions.

Decliners led advancers nearly 3 to 2 on the New York Stock Exchange, with 1,817 down, 1,241 up and 218 unchanged. Volume was 1.18 billion shares vs. 1.47 billion yesterday.

The NYSE composite index fell 5.71 to 625.37, the American Stock Exchange composite index lost 9.17 to 488.65 and the Russell 2000 index fell 9.17 to 488.65.

The Treasury's 10-year note rose 11/32 to 99 2/32; its yield fell 5 basis points to 5.12 percent. The 30-year bond rose 20/32 to 97 2/32; its yield fell 4 basis points to 5.58 percent. Bond prices and yields move in opposite directions.

The selloff began this morning when Merck reduced earnings expectations for the second quarter and the year because of lower-than-anticipated sales of Vioxx, its arthritis and acute pain medication.

Merck ended the session down $6.67, nearly 9 percent, at $67.80. The stock is a Dow component, so its losses strongly affected the blue-chip index.

The warning pulled down other health care stocks, too, including Pfizer, which fell $1.97 to $42.90.

Manufacturing and retailing stocks also were weak. General Motors fell $1.96 to $62.86, while Gap dropped $1.51 to $32.03 after announcing it would eliminate up to 700 jobs, about 7 percent of its work force, and scale back on expansion plans.

In the technology sector, ON Semiconductor Corp. fell 19 cents to $4.75 on word its second-quarter revenue will be 12 to 15 percent below the $361 million in the previous quarter because of weak business.

But the news wasn't all bad for tech issues. Investors bought some networking and fiber-optic equipment makers, including Ciena, which rose $2.26 to $41.50.

"There appears to be a rotation into some of the big-cap tech names," said Jon Brorson, director of equities at Northern Trust. "It's hard to say why. The chatter has been that the economy is starting to firm, but I'm not sure that's the case."