NEW YORK – Stocks surrendered their early gains and scampered back into negative territory Tuesday after the Conference Board reported that U.S. consumer confidence fell in February, pouring cold water on hopes that an economic recovery is under way.
The blue-chip Dow Jones industrial average fell 30.45 points, or 0.30 percent, to 10,115.26. The broader Standard & Poor's 500 Index was down 0.03 points, or 0 percent, at 1,109.40. The tech-laced Nasdaq Composite was off 2.92 points, or 0.16 percent, at 1,766.96.
A rumor that U.S. special forces had landed in Iraq swept through trading desks and exacerbated the mid-morning drop, traders said. But the market pared its losses after a Pentagon spokesman denied American troops were in Iraq and said the report originated with Fox News Channel.
Fox News Channel operates FOXNews.com.
The market posted gains after the opening bell, but they quickly evaporated after the Conference Board reported is consumer confidence index fell to 94.1 in February — its lowest level since November and well below expectations — from a revised 97.8 in January.
"The magnitude of the decline (in confidence) was very surprising," said Hugh Johnson, chief investment officer at First Albany Corp. "That's really worrisome. It's hard to imagine a recovery in the economy and earnings if consumers are not confident and spending money."
Lingering uncertainty about prospects for an economic turnaround has made for volatile trading as various economic reports whipsaw the market, said Eric Gustafson, portfolio manager at Stein, Roe & Farnham. "People are just very fearful of volatility and being on the wrong side of a trade."
February's drop in the consumer index helped undermine Wall Street's confidence in the economy, analysts said. Investors are paying close attention to such data because consumer spending, which has been resilient despite recession, powers two-thirds of U.S. economic activity.
The report, which is said to be watched by Federal Reserve Chairman Alan Greenspan, arrives before the the central banker begins his twice-yearly testimony on the economy to Congress on Wednesday.
Indexes briefly rebounded into the positive in the final hour of trading as bottom fishers snatched up stocks. But the disappointment resulting from the weak consumer confidence data got the upper hand as it undermined confidence in the world's largest economy.
Resistance — the point where sellers are likely to emerge — is at 10,210 for the Dow, 1,810 for the Nasdaq and 1,120 for the S&P, according to research firm Schaeffersresearch.com.
Support — where buyers are expected to swoop in — is at 10,000 for the Dow, 1,700 for the Nasdaq and 1,090 for the S&P. The levels are key elements of technical analysis, which studies prices, volume and charts.
Home Depot Inc., the world's largest home-improvement retailer and a Dow stock, reported a 53 increase in profits on a strong U.S. housing market, mild weather and store discounts.
But its shares fell 56 cents to $51.51, sinking in sympathy with shares of rival Lowe's Cos. after Prudential Securities cut its investment rating on Lowe's due to several factors including prospects for rising interest rates in 2002.
Shares of Lowe's dropped $1.02 to $46.47.
Federated Department Stores rose $2.64, or 6.7 percent, at $41.66. The parent of Bloomingdale's and Macy's reported a 23 percent decline in profits as consumers bought less in the U.S. recession, hurting sales, but raised its 2002 forecast.
Toll Brothers jumped $3.32 to $47.30 after it reported that its earnings rose, spurred by growth in the number of affluent households.
Shares of Computer Associates International Inc., battered by reports of federal inquiries into its accounting and possible downgrades of its credit, reversed a sharp downtrend and gained more than 10 percent, as investors sensed that shares may have been pushed too low. Computer Associates, the world's No. 4 software maker, was up $1.63 at $17.61.
Peregrine Systems Inc. bolted up 23.6 percent after Deutsche Banc said it upgraded the software company's stock rating to "strong buy" from "buy." Shares finished up $1.63 at $8.52.
Advancing issues outnumbered decliners by a 4-to-3 ratio on the New York Stock Exchange. Consolidated volume was light at 1.59 billion shares, below Monday's 1.67 billion shares.
The Russell 2000 index, the barometer of smaller company stocks, rose 3.10, or 0.7 percent, to 471.29.
Overseas, markets were mostly higher Tuesday. In afternoon trading in Europe, Germany's DAX index, France's CAC-40 and Britain's FT-SE 100 each gained about 0.8 percent. But Japan's Nikkei stock average fell 0.9 percent.
Reuters and the Associated Press contributed to this report.