NEW YORK – Stocks pared earlier gains and turned negative Wednesday after the White House cut its forecast for 2005 gross domestic product growth, offsetting enthusiasm a slew of positive corporate news and lower oil prices.
The Dow Jones industrial average (search) inched down 6.21 points, or 0.06 percent, to end at 10,476.86 and the Standard & Poor's 500 Index (search) edged down 2.59 points, or 0.22 percent, to finish at 1,194.67. The Nasdaq Composite Index (search) dipped 6.98 points, or 0.34 percent, to close at 2,060.18.
In its mid-year economic forecast, the White House predicted fourth-quarter-over-fourth-quarter growth of 3.4 percent, compared to a December forecast that pegged growth for the same period at 3.5 percent.
"The White House lowering the GDP forecast did not meet with market approval at first," said Barry Hyman, equity market strategist at Ehrenkrantz, King, Nussbaum.
Investors were also reluctant to wade into the market before remarks on the U.S. economy by Federal Reserve Chairman Alan Greenspan, afraid he might say the central bank is not yet finished raising interest rates in the short term.
Greenspan will testify on the economic outlook before the Joint Economic Committee (search), a congressional panel of U.S. senators and representatives, Thursday at 10 a.m. EDT.
"I think there is also legitimate concern ahead of Mr. Greenspan's statement because it could indicate the Fed is not going to stop interest-rate hikes early, so that's a cause for nervousness," Hyman said.
The U.S. dollar saw a late-day rebound against the euro ahead of Greenspan's remarks to Congress on Thursday. Bonds fell slightly, with the yield on the 10-year note rising to 3.94 percent from 3.92 percent late Tuesday.
Crude oil skidded $1.22 to settle at $52.54 per barrel on the New York Mercantile Exchange (search), reversing gains made after a weekly government report on fuel inventories showed an unexpected 3 million-barrel draw on crude; analysts had expected a build. Gasoline inventories were also down, though supplies of distillate fuels rose.
Pricey oil and anxiety over the strength of the economy have kept stocks in a trading range recently, but the idea that the Fed might soon end the rate tightening cycle has brightened sentiment. A halt to the rate hikes would create a more stable business environment, which would bode well for the rest of 2005. If investors do get a clear signal that the final rate hike is in sight, it would be a positive catalyst for stocks, said Susan L. Malley, chief investment officer for Malley Associates Capital Management in New York.
"Stock valuations now are good, profits are still good. ... We'd all love it if economic growth were a little more robust, but it's still above trend growth," Malley said. "We're still expecting a positive year, and we are optimistic that when it seems like the end to rate increases is coming, that will be a positive for stocks."
In company news, General Motors (GM) rose 4.2 percent, or $1.29, to $32.02, after billionaire investor Kirk Kerkorian's Tracinda Corp. boosted its stake in the automaker to 7.2 percent, having purchased 18.9 million shares as part of a tender offer. Kerkorian had been seeking to purchase up to 28 million GM shares at $31 apiece.
Shares of heavy equipment maker Caterpillar (CAT) added 2.2 percent, or $2.05, to $96.58 on the NYSE after brokerage Prudential raised its investment rating and price target on the stock.
Shares of Altria Group Inc.(MO) , which owns cigarette maker Philip Morris USA, rose 1 percent to $68.47 on the NYSE. On Tuesday the U.S. Justice Department slashed the cost of a national quit-smoking campaign that it had expected to seek in its racketeering case against cigarette makers.
Texas Instruments (TXN) was up 62 cents at $27.90 after the chipmaker raised its second-quarter earnings forecast and narrowed its revenue outlook, citing higher demand for semiconductor products and seasonal growth for educational calculators.
Biotechnology firm ImClone Systems Inc. (IMCL) surged 17 percent, or $5.11, to $35.27, after data from a late-stage study confirmed that its Erbitux drug, when used in combination with radiation therapy, prevents the spread of head and neck cancer more effectively than radiation therapy alone. Erbitux is already approved by the Food and Drug Administration (search) to treat colorectal cancer. Separately, financier Carl Icahn filed for clearance to invest between $100 million and $500 million in the company, including already acquired shares.
Shares of Biogen Idec (BIIB) fell almost 5 percent, or $1.72, to $33.35 on Nasdaq. In a research note, an analyst at Bear Stearns warned of possible European competition for the company's Avonex multiple sclerosis drug.
McDonald's Corp. (MCD) shares fell 1.2 percent, or 34 cents, to $29.23 after it said its May sales missed expectations.
Trading was moderate, with 1.33 billion shares changing hands on the New York Stock Exchange, below the 1.46 billion daily average for last year. About 1.64 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.
The number of stocks falling outnumbered those rising by about 9 to 7 on the NYSE. On Nasdaq, decliners outpaced advancers by a ratio of about 3 to 2.
The Russell 2000 index, which tracks smaller company stocks, was down 3.31, or 0.53 percent, at 620.47.
Overseas, Japan's Nikkei stock average rose 0.57 percent. In Europe, France's CAC-40 slipped 0.22 percent, Britain's FTSE 100 fell 0.43 percent and Germany's DAX index was down 0.19 percent.
Reuters and the Associated Press contributed to this report.