Stocks move lower after White House warning

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NEW YORK -- Wall Street pulled back Monday after the Bush administration warned Iran following an incident involving that country's forces and three U.S. Navy ships in the Strait of Hormuz.

Stocks had opened higher amid speculation about future interest rate cuts but turned lower after reports of the administration's comments appeared on news services.

U.S. forces were on the verge of firing on the Iranian boats in the early Sunday incident, when the boats turned and moved away, a Pentagon official said. The White House on Monday warned it "will confront Iranian behavior" if it threatens the U.S. or its allies.

Concerns about fresh tensions in the Middle East was enough to spook investors on a day with few substantive economic or corporate events. Investors had originally sent stocks higher amid speculation the Federal Reserve will continue its campaign of interest rate cuts to ward off a recession.

Reports on jobs and manufacturing elevated concerns about a recession, and that has turned Wall Street's attention to the Fed's Jan. 29-30 rate-setting meeting. Some clues about the central bank's stance might come when Fed Chairman Ben Bernanke gives a speech on Thursday.

In late morning trading, the Dow Jones industrial average fell 32.93, or 0.26%, to 12,767.25. The blue chip index had been up as much as 80 points in early trading.

Broader stock indicators also fell. The Standard & Poor's 500 index dropped 3.09, or 0.22%, to 1,408.54, and the tech-heavy Nasdaq composite index fell 25.02, or 1.00%, to 2,479.63.

That extended last week's losses. In just the first three trading days of 2008, the Dow Jones industrial average lost 3.50%, the Standard & Poor's 500 index fell 3.86%, and the Nasdaq composite index dropped 5.57%.

Bond prices continued to rise Monday after a rally during the past week. The yield on the benchmark 10-year Treasury note, which moves opposite its price, dipped to 3.85% from 3.87% late Friday.

Oil prices fell despite a fire at Iraq's largest refinery, and after the incident with Iran. A barrel of light sweet crude fell $1.38 to $96.53 on the New York Mercantile Exchange.

The dollar was mixed against most major currencies, while gold moved lower.

Portfolio managers and other institutional investors are also taking positions ahead of fourth-quarter earnings reports due to be released in the coming weeks. Results will be scrutinized to determine how companies are holding up as the economy cools -- especially investment banks hurt by the ongoing credit crisis.

Alcoa Inc. unofficially opens the earnings season Wednesday when it becomes the first of the 30 Dow industrials to report results. Shares of the company rose 62 cents to $35.40.

Time Warner Inc. rose 12 cents to $16.03 after the entertainment company announced it plans to release high-definition movies on Blu-ray rather than Toshiba Corp.'s HD DVD formal. Blu-ray is owned by Sony Corp.

Napster Inc. fell 1 cent to $1.98 after the online music service announced plans to offer downloads as unprotected MP3 files. Previously, users were not able to play Napster downloads on popular music players like Apple Inc.'s iPod and Microsoft Corp.'s Zune.

Technology stocks could fluctuate as more news comes out of the Consumer Electronics Show, being held in Las Vegas this week.

Krispy Kreme Doughnuts Inc. Chief Executive Daryl Brewster has resigned amid a sputtering turnaround effort. The Winston-Salem, N.C.-based company said Brewster left for personal reasons but will stay with the company until the end of January. Shares rose 21 cents, or 7.4%, to $3.04.

The Russell 2000 index of smaller companies tumbled 6.71, or 0.93%, to 714.89.

Declining issues outpaced advancers by a 3 to 2 margin on the New York Stock Exchange, where volume came to 223.6 million.

Overseas, Japan's Nikkei stock average closed down 1.30%. Britain's FTSE 100 rose 0.34%, Germany's DAX index added 0.56%, and France's CAC-40 was up 0.41%.
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