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Stocks Collapse Despite Bush's Speech

Stocks tumbled Tuesday as a nagging lack of confidence in corporate America's accounting and profit prospects battered Wall Street despite President Bush's tough speech on corporate malfeasance, which promised stiff penalties for companies cooking their books.

Both the Standard & Poor's 500 index and the blue-chip Dow Jones Industrial Average racked up their biggest percentage declines in about five weeks.

The Dow Jones industrial average fell 178.81 points, or 1.93 percent, to 9,096.09, after a deep slide in the final two hours of trade. The Nasdaq composite fell 24.47 points, or 1.74 percent, to 1,381.14. The benchmark Standard & Poor's 500 dropped 25.15 points, or 2.47 percent, to 952.83.

"The fears that have been weighing on the market really haven't abated," said Jon Baranko, director of trading at Strong Capital Management. "You have continued concern about corporate responsibility ... about corporate profitability and a lack of visibility and trust in the numbers."

Bush urged a "new era of integrity in corporate America," after a long list of accounting scandals at firms ranging from energy trader Enron Corp. to telecom giant WorldCom Inc.

Bush's proposals included doubling the maximum jail term for mail and wire fraud -- charges frequently used in cases of corporate fraud -- to 10 years in a crackdown on accounting scandals that have undermined market confidence.

But analysts said that after months of accounting and ethics scandals, more than a speech was needed to restore public faith.

"I think actions speak louder than words. If somebody goes to jail, maybe people will take corporate America a little more seriously," said Jack Francis, managing director and head of Nasdaq trading at UBS Warburg.

Investors remain on edge about the upcoming earnings reporting season, with scant evidence so far that corporate results are improving.

"People are really on a wait-and-see here in the second quarter to see where the guidance goes for the second half," said Mark Donahoe, managing director of institutional sales trading at U.S. Bancorp Piper Jaffray, adding that there is little faith in corporate results, good or bad.

U.S. drugmaker Wyeth (WYE) tumbled about 24 percent after a study showed that women taking Prempro, the company's popular hormone replacement drug, had increased risk of breast cancer, stroke and heart disease.

Wyeth slumped $11.94 to $37.30. The news weighed on the drug sector, pushing the American Stock Exchange's pharmaceutical index down 4.4 percent.

Computer chip giant Intel Corp. (INTC) fell 54 cents to $17.96. Brokerage firm Salomon Smith Barney cut its 2002 and 2003 earnings estimates and price target for Intel, citing problems with the mix of sales of its computer chips.

Merrill Lynch cut its investment ratings and earnings estimates for 13 chip equipment companies, including sector heavyweight Applied Materials (AMAT). Deutsche Bank Securities cut earnings and prices targets on eight chip equipment makers, including Applied Materials and KLA-Tencor (KLAC).

Applied Materials fell $1.28 to $17.72, and KLA-Tencor Corp. fell $2.72, or 6 percent, to $41.86. Both helped send the Philadelphia semiconductor index down 3.6 percent.

Lucent jumped 23 cents to $2.04, while another battered telecommunications name, Qwest Communications International , jumped 50 cents, or about 24 percent, to $2.60.

While investors were dipping a toe into the technology, sector, they were also searching for safer bets, buying up shares of gold mining firms. The Standard & Poor's gold index was up 5.8 percent.

Nervous investors also sought a haven from the stock market's volatility in U.S. Treasuries. Two-year note yields , which move inversely to prices, were poised to close near 2.69 percent -- their lowest close of the year.

But the fragility of corporate earnings was highlighted on Tuesday by downbeat forecasts from companies like software makers Citrix Systems Inc. (CTXS) and Retek Inc. (RETK)and luxury jeweler Tiffany & Co. .

Shares of Retek, Nasdaq's leading percentage loser, plunged 63 percent, or $10.85, to $6.46 and those of Citrix fell 92 cents, or 16 percent, to $5. The two gave bleak financial forecasts and pressured other companies in the software sector.

Tiffany (TIF) warned its second-quarter profit will fall to the low end of its previously expected range, sapped by lackluster sales at stores open at least a year and sharper declines in its key Japan market. It fell $3.09 to $30.49.

"A lack of earnings is still weighing the market down," said Matthew Ruane, director of listed trading at Gerard Klauer Mattison & Co. Inc. "Every rally has been sold off, and it will continue to be sold off until we can get a bellwether to come out and say that the earnings on the horizon for the next few quarters are good."

Pepsi Bottling Group Inc. (PBG), the No. 1 bottler and distributor of Pepsi-Cola drinks, fell after it posted a profit, but the results and its forecast were not as stellar as some had anticipated. It fell $4.64 to $27.75.

Weekly retail chain store sales for the week ended July 6, issued by the Bank of Tokyo-Mitsubishi and UBS Warburg, showed a 0.7 percent rise after a 0.9 percent decline in the previous week as promotions drove consumers to the nation's stores over the long Independence Day holiday. This snapshot is compiled from seven major discount, department and chain stores.

Instinet Research reported that the Redbook Retail Sales Average rose 1.8 percent in the five weeks to July 6 compared with May as hot summer weather drove consumers to the malls.

Declining issues led advancers 3 to 2 on the New York Stock Exchange. Volume came to 1.34 billion shares, compared with 1.16 billion Monday. Decliners led advancers 5 to 4 on the Nasdaq Stock Market.

The Russell 2000 index fell 4.36 to 429.25.

Overseas, Japan's Nikkei stock average rose 1.8 percent. In Europe, Germany's DAX index lost 1.6 percent, Britain's FTSE 100 was down 1.3 percent, and France's CAC-40 was down 1.0 percent.

Reuters and the Associated Press contributed to this report.