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Stocks Drop After U.N. Vote, McDonald's Warning

Stocks dipped Friday, with the broad market snapping a four-week winning streak, as investors cautiously sat on the sidelines after a profit warning from fast-food giant McDonald's (MCD) and the unanimous approval of a U.N. resolution to disarm Iraq.

The blue-chip Dow Jones industrial average lost 49.18 points, or 0.57 percent, at 8,537.06, while the tech-laden Nasdaq Composite index fell 17.47 points, or 1.27 percent, at 1,359.24. The broad Standard & Poor's 500 slipped 7.88 points, or 0.87 percent, to 894.77.

Another dour forecast came from grocery chain Safeway Inc. (SWY), sending its stock to 6-year lows and dragging rivals' shares. Weighing on hospital stocks, Tenet Healthcare Corp.(THC), which faces an audit over Medicare payments, plunged 47 percent after it said two top executives left the company.

Such news convinced jittery investors to book more profits from a month-long rally that has lifted major stock gauges about 20 to 25 percent from 5-year lows hit early October.

"The overwhelming majority of fairly sophisticated investors say they do not trust the rally," said Hugh Johnson, chief investment officer at First Albany Corp. "They believe the U.S. economy is heading for trouble."

Meanwhile, market players gave mixed views about a U.N. resolution to disarm Iraq. Some said it had little impact on stocks. Others said it reminded Wall Street that the issue is not resolved yet, and that U.S. military action would be more likely if Iraqi President Saddam Hussein did not comply.

"It's weighing on the market temporarily," said Ron Doran, director of institutional trading at C.L. King & Associates. "But it's a long-term positive ... Whatever takes place, if there is disarming by himself or if we have to disarm him, there's a solution and everyone's on board."

The U.N. Security Council unanimously approved a resolution giving Iraq one last chance to eliminate its weapons of mass destruction or face "serious consequences." U.N. backing of the resolution, drafted by the United States and Britain, had been expected by the Street.

The Federal Reserve unleashed a hefty, half-percentage point cut in interest rates this week and Web gear giant Cisco Systems Inc. warned of tepid quarterly sales, raising worries over the health of corporate profits and the economy.

"Cisco is still weighing on everybody's minds, and there is some concern still that with the Fed acting the way that it did there's a bigger risk out there than we think," said Edgar Peters, chief investment officer at PanAgora Asset Management, which manages about $13 billion.

Cisco (CSCO) bounced back and ended up 23 cents at $12.58 Friday, ranking as the most actively traded stock on Nasdaq.

Dow stock McDonald's lost $1.52 to $17.79, or 7.87 percent. The hamburger giant said it would close about 175 restaurants worldwide and miss its 2002 earnings estimate as it continues to struggle with underperforming sales in the United States amid stiff competition in the fast-food business.

General Electric Co. (GE) fell 4 percent, or $1.05, to $25.10, weighing on the Dow. The decline came after J.P. Morgan analyst Don MacDougall spooked investors when he said GE may have to contribute up to $5 billion in equity to shore up the balance sheet of GE Capital because the finance arm has a higher debt ratio than previously assumed.

Tenet sank $13.05 to $14.90, and was the Big Board's most active. The second-largest U.S. hospital chain said two of its senior executives left the company, and added it is reviewing its outlook for earnings after fiscal 2003, which ends in May.

Tenet's battering left its mark on hospital stocks such as HCA Inc. (HCA), down $4.97 to $40, or 11 percent. Deutsche Bank Securities downgraded Tenet and HCA to "hold" from "buy," citing investor mistrust of the hospital sector since revelations last month about Tenet's Medicare revenue and a government investigation into its surgical procedures.

"This episode reminds investors that the hospital industry is highly regulated and these investor-owned health care service companies have a responsibility to constituents to act in good faith around a very complex set of Medicare rules," said Darren Lehrich, an analyst at SunTrust Robinson Humphrey who downgraded Tenet's stock to "underperform" from "buy."

Safeway (SWY) sank $2.59 to $20.01, or 11.46 percent. The No. 3 U.S. grocer forecast weaker profit for the fourth quarter and next year, sending its shares to 6-year lows, as a skittish economy helps discounters like Wal-Mart Stores Inc. lure customers away. Among Safeway rivals, Kroger Co. (KR) fell 88 cents to $14.10, or 5.87 percent, and Albertson's Inc. lost 74 cents to $19.82, or 3.6 percent.

Nvidia Corp. (NVDA) sank 21.92 percent, or $3.19, to $11.36. The graphics chip designer reported weak results amid concerns a tough competitive environment may hurt earnings.

El Paso Corp.(EP), the top pipeline company, fell $1.52, or 16.52 percent, to $7.68. The company said it will exit the energy trading business, as the unit's results suffered from the market's devastation, leading to a loss for the quarter.

Support, where buyers swoop in, is at 1,350 for Nasdaq, 8,400 for Dow and 880 for the S&P 500, according to Schaeffer's Investment Research. Resistance, the point where sellers emerge, is at 1,420 for Nasdaq, 8,800 for Dow and 925 for S&P.

Losers outnumbered winners by roughly 3 to 2 on the New York Stock Exchange and Nasdaq. About 1.44 billion shares traded on the Big Board and 1.59 billion on Nasdaq in modestly active trade.

The Russell 2000 index, which tracks smaller company stocks, fell 4.15, or 1.1 percent, to 379.00.

Overseas, Japan's Nikkei stock average finished 2.6 percent lower. In Europe, Germany's DAX index was down 2.4 percent, France's CAC-40 declined 1.7 percent, and Britain's FTSE 100 fell 1.1 percent.

Reuters and the Associated Press contributed to this report.