- The Washington Times - Tuesday, May 31, 2005

NEW YORK (AP) — A surprisingly weak reading on the manufacturing sector sent stocks mostly lower yesterday as investors feared that the economy has run into a soft patch. The report overshadowed news of an improvement in consumers’ view of economic conditions.

Investors were disappointed when the National Association of Purchasing Management-Chicago reported that its index of business activity in the Midwest area fell to 54.1 last month from 65.6 in April. In April, the index had fallen from 69.2 the previous month. A reading above 50 indicates expansion in the manufacturing sector, and a number below 50 indicates contraction.

The Chicago indicator is a closely watched barometer of manufacturing activity and is considered a precursor of the national assessment to be issued by the Institute for Supply Management today.

The news outweighed the positive effect from the Conference Board’s Consumer Confidence Index. The index rose to 102.2 last month from a revised 97.5 in April, above the 96 analysts had expected.

The Dow Jones Industrial Average fell 75.07, or 0.71 percent, to close at 10,467.48.

Broader stock indicators also fell. The Standard & Poor’s 500 index closed down 7.12, or 0.59 percent, at 1,191.66 and the Nasdaq Composite Index fell 7.51, or 0.36 percent, at 2,068.22.

Although Wall Street has rallied in recent weeks, it has reacted nervously to economic indicators, unable to shake concerns that the recovery is faltering just as the Federal Reserve holds to its policy of raising interest rates. This week’s indicators, which also include the government’s employment report for May, expected Friday, are reviving some of the market’s uneasiness.

“We’ve seen a good run in the market, and now it’s pausing a little bit,” said Scott Jacobson, chief investment strategist at Jefferies & Co. in New York. “The debate now is how far the Fed will go. Will the Fed drive the economy into a slow patch?”

Scott Wren, senior equity strategist at A.G. Edwards & Sons Inc. in St. Louis, said investors are still struggling through questions about how much the economic will slow, and what effect that may have on the market.

“Typically, at this point in the cycle, investors seek clarity on inflation and economic growth,” Mr. Wren said. “As you transition from higher growth and low inflation to slower growth and higher inflation, typically the indicators remain mixed, which is what we’re seeing.”

In other markets, the dollar continued to rally against the euro, hitting its highest level in almost eight months after France rejected the European Union constitution over the weekend. The euro dropped as low as $1.2312 before recovering to $1.2338 yesterday afternoon.

The higher dollar as well as the weaker outlook on manufacturing helped boost the 10-year Treasury bond, pushing its yield briefly below the psychological barrier of 4 percent for the first time since early February.

In corporate news, American International Group Inc., the insurance company being investigated over accounting issues, fell 85 cents to $55.55.

AIG filed its long-delayed annual report with the Securities and Exchange Commission yesterday, cutting its shareholders’ equity at Dec. 31, 2004, by $2.26 billion, or 2.7 percent, to $80.61 billion, in line with an earlier estimate.

Medco Health Solutions Inc. fell $2.20, or 4.2 percent, to $50.00 after the Wall Street Journal reported that the prescription benefit manager is resisting a federal subpoena from the Health and Human Services Department.

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