NEW YORK – Stocks pared their gains late Friday as optimism from a stronger-than-expected consumer sentiment report faded amid Xerox Corp.(XRX)'s restatement of its revenues by about $2 billion — the latest accounting scandal to hit the market.
The Dow Jones industrial average fell 26.66 points, or 0.29 percent, to 9,243.26, much of the loss coming in the final minutes of the trading day. The benchmark S&P 500 slipped 0.82 points, or 0.08 percent, to 989.82 and the Nasdaq composite rose 5.76 points, or 0.4 percent, to 1,464.96.
Analysts pinned the market's swings to quarter-end portfolio rebalancing, when fund managers add winning stocks to make funds look robust on the quarterly statements. A rebalancing of some popular indexes and news in the last hour that the U.S. Capitol was evacuated after smoke was reported in the building also contributed to the volatility.
"It's the last day of the quarter and you have a lot going on," said Barry Berman, head of equity trading for Robert W. Baird & Co. "Today's the last chance to get the ugly, embarrassing positions out of portfolios. Overall, though, the market's been holding up really well between WorldCom and Xerox."
For the quarter, the Standard & Poor's 500 index fell 13.7 percent, while the Nasdaq composite index dropped 20 percent and the Dow Jones industrial average slid 11 percent.
Office equipment company Xerox fell $1.03, or 13 percent, to $6.97 after saying it will restate five years of results to reclassify more than $6 billion in revenues, in yet another scandal battering confidence in Corporate America's accounting.
The Xerox announcement jangled nerves still raw from WorldCom's disclosure earlier this week but investors have been rapidly building up an immunity to the barrage of bad news.
WorldCom Inc. (WCOM) sent global markets reeling on Wednesday after the telephone company disclosed it inflated results by about $4 billion, but investors who had braced for a major breakdown on Wall Street were surprised when the market recovered.
"If the WorldCom torpedo couldn't sink the battleship, then Xerox isn't going to do it," said Jon Brorson, director of equities for Northern Trust Co. "People are impressed that the Sept. 21 lows held in the face of disastrous news."
Tyco International Ltd. (TYC), whose future hinges on the initial public offering of its finance arm, surged $1.18, or 9.6 percent, to $13.51 as investors became more confident the offering would take place next week.
Friday marked the last day of the second quarter and of the month. At quarter-end, fund managers often scramble to add recent stock winners to their portfolios and dump losers, to dress up their funds.
A rebalancing of Frank Russell Co. indexes also contributed to stock swings. Every year at the end of June, the firm reshuffles its Russell 2000 index , the dominant benchmark for small company stocks, and other indexes. About $24 billion in assets mimic the Russell 2000 through index-tracking mutual funds.
Investors were also clinging to hope that the economy is on the mend after stronger-than-expected consumer sentiment data arrived after encouraging growth data earlier this week.
The University of Michigan's final June consumer sentiment index fell to 92.4 in June from 96.9 in May, but that was up from a preliminary reading of 90.8 released two weeks ago. Economists expected the index to be unchanged from its mid-month reading.
"With the beating that we've taken over the past week, the economic numbers are throwing a little hope into the picture," said Joseph Dorilio, head of trading at investment firm ING. "Maybe that's just what people need, something to latch onto."
Separately, the National Association of Purchasing Management-Chicago said its monthly index of manufacturing activity fell to 58.2 in June from 60.8 in the prior month. Economists polled by Reuters expected a reading of 58.9.
Another bright spot was Nike Inc. (NKE), which rose $2.23, or 4 percent, to $53.65 after Salomon Smith Barney raised its rating on the world's largest athletic footwear and apparel maker to "buy" from "outperform" a day after Nike posted better-than-expected quarterly earnings.
Breadth was positive, with more than two stocks higher for every one that fell on the New York Stock Exchange, and three stocks gaining for every two that fell on Nasdaq. Volume was heavy as fund managers scrambled to reshuffle their portfolios, with 2.1 billion shares changing hands on the NYSE and 2.4 billion exchanged on the Nasdaq.
The Russell 2000 index, the barometer of smaller company stocks, rose 3.94, or 0.9 percent, to 462.66.
Overseas, Japan's Nikkei stock average finished Friday up 3.5 percent. In Europe, France's CAC-40 surged 4.2 percent, Britain's FTSE 100 rose 2.6 percent, and Germany's DAX index climbed 2.9 percent.
Reuters and the Associated Press contributed to this report.