January 29, 2002 04:43 PM ET
By Denise Duclaux
NEW YORK (Reuters) - Stocks reeled on Tuesday, shoving the broad market to its worst close in nearly three months, as confidence about the soundness of corporate accounting slid in the wake of the scandal enveloping energy trader Enron Corp. ENRNQ.PK.
"A lot of the people that got badly burned on Enron are just terrified of the fact that this could happen twice," said David Memmott, head of listed block trading at Morgan Stanley.
Shares of conglomerate Tyco International Ltd. TYC.N dove almost 20 percent to a two-year low as questions swirled around accounting for its myriad acquisitions. Energy company Williams Cos. WMB.N sparked worries about its financial statements after delaying the release of its full earnings report.
Investors hoped President Bush's annual State of the Union address on Tuesday night and the Federal Reserve's interest-rate decision due on Wednesday would offer more clues on the economic outlook. The central bank is widely expected to leave interest rates unchanged, ending its aggressive monetary easing policy as the economy shows pockets of strength.
"We're seeing a lot of negative sentiment today, even though we got strong economic news," said Stephen Carl, principal and head of U.S. equity trading at Williams Capital Group. "What's driving it is mainly concerns about accounting issues. Investors are clearly worried about more skeletons in the closet."
The blue-chip Dow Jones industrial average .DJI tumbled 247.51 points, or 2.51 percent, to 9,618.24, sinking to its lowest close since mid-November. The technology-laced Nasdaq Composite Index .IXIC surrendered 50.95 points, or 2.62 percent, to 1,892.96.
The broad Standard & Poor's 500 Index .SPX sank 32.42 points, or 2.86 percent, to 1,100.64, suffering its biggest drop since mid-September and hitting its worst close since early November.
Losers trounced winners by a ratio of 7 to 3 on the New York Stock Exchange and 2 to 1 on Nasdaq. More than 1.75 billion shares changed hands on the Big Board and more than 1.82 billion on Nasdaq.
U.S. long-distance phone company and data carrier WorldCom Inc. WCOM.O skidded $1.60 to $10.40 on rumors debt rating agencies were about to downgrade the company's debt, although Standard & Poor's denied it was about to take such an action. WorldCom fell as low as $9.76, its worst level in seven and a half years.
"This market is so damned nervous about what is out there, and what is the next thing that is going to fall," said Ned Collins, head of trading at Daiwa Securities America.
Widespread accounting fears overshadowed upbeat data on consumer confidence and durable-goods orders that lifted stocks early in the day. The accounting scare has gathered steam in the wake of the bankruptcy of energy trader Enron Corp.
Tyco surrendered $8.35 to $33.65 -- a loss of more than $16 billion in market value -- in frenzied trading and fell as low as $32 during the day. Its shares have slumped since the start of the year, hit by questions about its accounting practices and its plans to split into four companies.
Tyco on Monday disclosed it made payments totaling $20 million to an outside director, Frank Walsh, and to a charity of which he is a trustee. Tyco on Tuesday defended the move, saying the fee "was appropriate."
Medical device maker C.R. Bard BCR.N said it was in talks with Tyco regarding its proposed $2.6 billion acquisition of Bard. Bard last week said it was reassessing the deal after Tyco said it would split into four companies.
Energy trader and pipeline operator Williams Cos. dropped $5.36 to $18.78. Williams Cos. said it plans to publish a full earnings statement in a few weeks after completing a study of its financial obligations to loss-making Williams Communications WCG.N, which has $1.4 billion in debt and a lease deal covering assets that cost $750 million.
Shares of travel services and real estate firm Cendant Corp. CD.N slumped nearly 10 percent amid general investor worries over accounting practices, analysts said.
International Business Machines Corp. IBM.N dropped $5.15 to $103, pressuring the Dow. The computer giant said Chief Executive Louis Gerstner, who led a massive turnaround of the once-ailing computer giant in the 1990s, will step down March 1 and be replaced by President Samuel Palmisano.
Wall Street house Merrill Lynch said it set "neutral" ratings on IBM as well as a few other enterprise hardware stocks, explaining that "valuations appear high while business is still bottoming."
PNC Financial Services Group Inc. PNC.N sank $5.79 to $56.08. The financial services provider said it will restate results for 2001 downward by $155 million to comply with a regulatory request that it consolidate three outside interests. PNC said the Fed and the Securities and Exchange Commission are making inquiries about transactions.
Texas Instruments TXN.N, the world's No. 1 maker of computer chips for mobile phones, rose $1.59 to $29.96. The company posted a lower-than-expected loss and said it expects first-quarter results to be "about break-even" and revenues to be about level with the fourth quarter.
ChevronTexaco Corp. CVX.N, the No. 2 U.S. oil company, fell $3.19 to $85.68. The company reported a loss of more than $2.5 billion after a raft of charges relating to its recent merger and write-downs of oil and gas properties.
Stocks popped briefly higher after a better-than-expected report on U.S. consumer confidence, but the gains were fleeting, and some analysts said talk in the market of an even higher number had made the results disappointing.
U.S. consumer confidence surged for a second month in January as Americans felt better about the outlook for employment and business conditions. The Conference Board, a New York-based private research group, said its index of consumer confidence surged to 97.3 in January, beating forecasts.
Earlier, the U.S. Commerce Department reported that U.S. durable goods orders climbed 2 percent -- beating expectations -- in December following a downwardly revised 6 percent drop in November.