Blue Chips Hit Hard by Merck Warning

NEW YORK – Blue-chip stocks tumbled Friday as profit warnings from pharmaceutical giant Merck & Co. and Internet security firm Symantec Corp. scared investors away.

Dismal corporate news are making it difficult for investors to focus on prospects for a half-point interest-rate cut at next week's Federal Reserve policy meeting.

The Dow Jones industrial average dropped 110.84 points, or 1.03 percent, to end at 10,604.59, while the Nasdaq composite index fell 23.93 points, or 1.16 percent, to 2,034.83. The broad Standard & Poor's 500 Index fell 11.69 points to 1,225.35.

``You have to expect that your average company that you are investing in is going to have a profit warning,'' said John Forelli, senior vice president at Independence Investment LLC, which oversees $25 billion. ``When one company makes an announcement, everybody is going to extrapolate it to the other companies in that industry.''

Merck & Co. Inc., the world's No. 3 drug maker and a Dow component, tumbled almost 9 percent, or $6.67, to $67.80, after warning its full-year earnings would be below its previous projections, hurt by slower-than-expected sales of its flagship arthritis drug Vioxx and the negative impact of foreign exchange rates.

``Merck is the type of company you don't expect to miss. That's what's putting pressure on the S&P today,'' said Rafael Tamargo, director of equity research at Wilmington Trust. ``This shakes confidence a little bit.''

The decline accounted for 40 percent of the Dow's drop, and pushed the blue-chip gauge into negative territory for the week.

For the week, the Dow fell nearly 0.2 percent, the Nasdaq gained one-third of a percent and the S&P 500 added 0.9 percent. Year-to-date, the Dow is down 1.7 percent, the Nasdaq composite off 17.6 percent and the S&P 500 down 7.2 percent.

The Gap dropped $2.57 to $30.97 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, Symantec dropped $18.91, or 31 percent, to $42.44 and was the second most-active stock on the Nasdaq after it cut earnings expectations, citing weak technology spending around the world and negative foreign currencies.

Manugistics Group Inc. tumbled 30 percent in heavy volume, a day after reporting results that suggested its software licensing business was being hurt by the slowing U.S. economy. The stock dropped $11.07 to $25.25, making it the second-biggest loser and the fifth-largest decliner in percentage terms on the Nasdaq.

ON Semiconductor Corp. fell 17 cents to $44.77 on word its second-quarter revenue will be 12 to 15 percent below the $361 million in the previous quarter because of weak business.

Still, some investors saw a silver lining within the cloud of bad news. Micron Technology Inc., one of the biggest makers of memory chips used in personal computers, reported results that missed analysts' forecasts. Still, Micron gained $1.18 at $38.80 as investors sensed the bad news was already reflected in the stock.

``We believe that we are near a cyclical bottom,'' Prudential Securities said in a note to clients. ``Longer term, we continue to believe that Micron will be one of the few left standing in this still consolidating industry with its enviable cost structure and industry leadership.

Chipmaker Intel Corp. rose 55 cents to $27.80.

Some money managers said they anticipated the economic turnaround to come early next year and were buying stocks in anticipation.

``We're buying on the margin,'' said Tim Woolston, who helps manage $1.7 billion for Boston Advisors Inc. ``It should be a given that earnings in 2001 are going to be down.''

Companies in the Standard & Poor's 500 Index are expected to post average earnings growth of 19 percent next year, compared with a drop of 5.5 percent this year, according to Thomson Financial/First Call.

The hope of another Federal Reserve interest rate cut helped push stocks up Thursday, but many analysts are doubtful that another reduction will cure the market's woes with more bad earnings news still ahead.

Declining issues led advancers nearly 3 to 2 on the New York Stock Exchange. Volume came to 772.83 million shares, compared with 891.53 million at the same point Thursday.

The Russell 2000 index fell 6.36 to 491.46.

Overseas, Japan's Nikkei stock average rose 0.6 percent. Germany's DAX index fell almost 0.1 percent, Britain's FT-SE 100 rose 0.4 percent, and France's CAC-40 gained nearly 1.0 percent.

-- Reuters and the Associated Press contributed to this report.