Stocks Sag on War, Terrorism Fears

Stocks sagged Wednesday, with blue-chip Dow and the S&P 500 closing at their lowest levels since October, as the growing threat of a U.S.-led attack on Iraq and heightened security concerns spooked investors.

The Dow average fell 84.94 points, or 1.08 percent, at 7,758.17. The broader the S&P 500 slipped 10.52 points, or 1.27 percent, to 818.68, while the technology-laced Nasdaq Composite Index eased 16.52 points, or 1.28 percent, to 1,278.94, marking its lowest close since Oct. 17.

"Iraq is clearly front and center in terms of investor fears," said Subodh Kumar, chief investment strategist, at CIBC World Markets in Toronto. "The other issue is the question about earnings and recovery .. there are fears that revenues (going forward) will not come back fast enough to keep the earnings momentum going."

General Motors Corp. (GM) kept the Dow under pressure with a decline of more than 4 percent after a negative brokerage call, but Coca-Cola Co. (KO), up 1.8 percent, helped to underpin the blue-chip average after the world's top soft drink maker posted results that were largely in line with expectations.

"With the overhanging cloud of the Iraqi situation, renewed fears of terrorism and tensions with North Korea, this market breeds fear, and fear drives stock prices lower," said John Person, head financial analyst, Infinity Brokerage Services.

The dispute over North Korea's nuclear program deepened after U.S. intelligence officials said the communist state probably had one or two nuclear weapons and the ability to hit the United States with a missile.

War worries were the main focus of investors after U.S. Secretary of State Colin Powell said the impasse over demands that Iraq disarm or face military action had reached a "moment of truth".

All three market gauges have fallen four straight weeks amid nagging questions about the scale and timing of a possible assault on Iraq and the impact on the fragile U.S. economy.

But Wall Street also weighed comments from Federal Reserve Chairman Alan Greenspan on the economy during a second round of his semiannual testimony on Capitol Hill.

In testimony before the House Financial Services Committee, Greenspan sharpened his warning about the danger of ballooning budget deficits, putting him at odds with President Bush's push for a quick economic stimulus through tax cuts.

Other news that stoked investor jitters included reports the U.S. military has deployed jeep-mounted Stinger anti-aircraft missiles around the nation's capital in an increased alert against possible terrorist attack.

Corporate earnings news included soft reports from leading technology names such Applied Materials and Sycamore Networks (SCMR), off 1 percent and 4.6 percent, respectively.

Applied Materials (AMAT) , the top chip gear maker, slipped after it posted a loss and forecast earnings for its current quarter at the lower end of Wall Street expectations. Its shares fell 12 cents to $11.82. Among other chip issues, Intel Corp. lost 19 cents to $15.15.

Viacom Inc. (VIA) was a drag on the market, falling 2.4 percent as worries about its cable networks' cash flow overshadowed its report of better earnings on stronger advertising. It fell 93 cents to $36.57 on the NYSE.

"Chip stocks are having a tough time after Applied Materials reported a loss .." Schaeffer's Investment Research said in a note. "Media stocks are taking a beating despite Viacom's earnings beating the Street estimate."

GM fell $1.53 to $34.02 after Banc of America Securities cut its rating to "sell" from "neutral," based on reduced "free cash flow" growth expectations for the automaker.

Coca-Cola reported a slight rise in quarterly profit reflecting growing momentum in soft drink, juice and water sales. Coca-Cola shares rose 74 cents to $39.74.

Sycamore Networks, a telecom gear maker, reported a loss amid weak spending by telephone companies. It fell 15 cents to $3.10. Rivals also fell such as Cisco Systems Inc., down 27 cents to $13.20.

Drug maker Johnson & Johnson (JNJ) also weighed on the Dow, falling $2 to $50. On Monday it agreed to buy Scios Inc. for about $2.4 billion in cash.

El Paso Corp. (EP) slid 22.6 percent to an all-time low a day after the debt-laden U.S. gas pipeline company announced a management shake-up and its credit ratings were slashed five notches deeper into junk territory. The shares, the most actively traded on the Big Board, fell $1.07 to $3.65.

The Russell 2000 index, the barometer of smaller company stocks, fell 4.58, or 1.3 percent, to 355.38.

Overseas, Japan's Nikkei stock average finished Wednesday up 2.1 percent. In Europe, France's CAC-40 fell 2.5 percent, Britain's FTSE 100 declined 1.5 percent and Germany's DAX index lost 2.1 percent.

Reuters and the Associated Press contributed to this report.