Stocks drop after weak manufacturing report

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NEW YORK -- Stocks traded lower Monday as investors digested a manufacturing report that was weak but not as bad as many on Wall Street had feared, and also absorbed another a disappointing construction sector report.

Investors trying to determine whether recent pessimism about the economy has been well-founded or overwrought examined the Institute for Supply Management's index of U.S. manufacturing activity. The reading came in at 48.3 -- stronger than the 48.1 the market expected, according to Thomson Financial/IFR.

However, the Commerce Department reported that construction spending in January fell by the steepest amount in 14 years.

"The two economic numbers that came out today were still rather on the negative side and they point to further weakness in economic activity," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. "I think that fact that the market might not be drastically declining at this point is because of the fact of the number from the ISM, even though they showed contraction, were slightly better than the market expected."

In late morning trading, the Dow Jones industrial average fell 32.24, or 0.26%, to 12,234.15.

Broader stock indicators also dropped. The Standard & Poor's 500 index declined 0.91, or 0.07%, to 1,329.72, and the Nasdaq composite index fell 7.84, or 0.35%, to 2,263.64.

Monday's decline comes after a sizable pullback Friday amid an unwelcome mix of economic and corporate reports. The news dashed hopes from early last week that the economy would soon show signs of a nascent recovery. The major indexes lost more than 2.5% Friday, with the Dow industrials losing 315 points.

Bond prices slipped Monday after jumping sharply amid Friday's stock market losses. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.55% from 3.53% late Friday.

Rising oil prices remained on some investors' minds after light, sweet crude futures rose as high as $103.95 a barrel on the New York Mercantile Exchange, reaching an inflation-adjusted record high. The dollar was mixed against other major currencies, while gold prices rose. Oil recently changed hands up $1.45 at $103.29.

Beyond the increase in oil prices, investors also had to contend with a Commerce Department report showing that construction spending fell by 1.7% in January. Economists had forecast a decline of 0.8%.

In corporate news, Boeing Co. lost a $40 billion Air Force tanker contract, weighing on the stock, which is one of the 30 that comprise the Dow industrials. Boeing had been supplying refueling tankers to the Air Force for nearly 50 years. European Aeronautic Defense and Space Co., which makes Airbus planes, and Los Angeles-based Northrop Grumman, were named Friday as winners of one of the biggest Pentagon contracts in decades.

Boeing fell $3.34, or 4%, to $79.45, while Northrop jumped $3.31, or 4.2%, to $81.92.

United Technologies Corp. said Sunday it has offered to acquire Diebold Inc. for $2.63 billion. United Technologies, the parent of jet engine-maker Pratt & Whitney, Otis elevators and Sikorsky Aircraft, said it made the unsolicited offer Friday after trying to negotiate a deal with Diebold for two years. The move would broaden the company's security business and expand its presence in China.

United Technologies fell $1.52, or 2.2%, to $68.99, while Diebold jumped $14.92, or 62%, to $39.04.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 501 million shares.

The Russell 2000 index of smaller companies fell 0.37, or 0.05%, to 685.81.

Stock markets overseas fell sharply after Wall Street's retrenchment Friday. Japan's Nikkei stock average closed down 4.49%. In afternoon trading, Britain's FTSE 100 was off 1.14%, Germany's DAX index fell 1.11%, and France's CAC-40 declined 1.14%.
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