Stocks Fall Amid Data, Merger Report, Lower Oil

Stocks fell sharply Tuesday, inflicting the tech-heavy Nasdaq its largest percentage decline in more than six weeks, as a sharp drop in oil prices hurt energy companies' shares and health-care company Johnson & Johnson (JNJ) fell following a report of a possible $24 billion takeover of Guidant Corp. (GDT).

The Dow Jones industrial average (search) fell 106.48 points, or 1.01 percent, at 10,440.58. The Standard & Poor's 500 Index (search) lost 13.18 points, or 1.11 percent, at 1,177.07. The technology-laced Nasdaq Composite Index (search) dropped 36.60 points, or 1.70 percent, at 2,114.65.

"The market probably got a little ahead of itself and so now the buyers are taking a little rest, and then there was also some program selling around midday and that exacerbated the problem," Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray in Minneapolis, said.

Johnson & Johnson fell 2.3 percent to $60.41 after sources familiar with the situation said it is in negotiations to acquire medical-device maker Guidant Corp. for more than $24 billion. Guidant jumped 5.2 percent to $72.35.

Shares of major oil companies tumbled after the price of crude fell 3.5 percent to a four-month low despite supply fears prompted by an attack on a U.S. consulate in Saudi Arabia and unrest in Nigeria. Futures of light, sweet crude declined $1.52 to close at $41.46 per barrel on the New York Mercantile Exchange (search). Meanwhile, the dollar struck a new all-time low against the euro.

Exxon Mobil Corp. (XOM) fell 1.16 percent to $49.56 and ChevronTexaco Corp.(CVX) fell 1.3 percent to $52.13.

After the market closed, Texas Instruments Inc. (TXN), the world's largest maker of chips for cell phones, said it expects fourth-quarter revenue and earnings per share to be at the midrange of its previous estimates.

Traders weren't overly concerned by the slide in equities, predicting that if oil continues to decline, buyers will return to Wall Street. In addition, with many professional investors such as mutual fund managers logging gains for the year, there's less threat of a more significant sell-off.

"I am not too concerned right now. I think the character of the market is in place, at least until the end of the year," said Michael Murphy, head trader at Wachovia Securities in Baltimore. "I think there's more of a risk to be out of the market than in the market at this point. And I think it's going to go higher."

The government reported that worker productivity grew at a 1.8 percent annual rate in the third quarter, the slowest pace in nearly two years. Some saw the deceleration as a sign that employers have squeezed as many efficiencies out of their existing workers as they can, and may seek to make new hires to meet customer demand.

The Labor Department's (search) latest snapshot of productivity — the amount an employee produces for every hour of work — was lower than previously thought, and marked a sharp pullback from the 3.9 percent pace logged in the second quarter.

Colgate-Palmolive Co. (CL) soared $3.78, or 8.2 percent, to $50.07, after the maker of consumer products such as Ajax detergent, Irish Spring soap and Hill's Science Diet pet foods, announced plans to cut its worldwide work force by about 12 percent and close one-third of its factories as part of a four-year plan to boost sales and profits.

IBM Corp. (IBM) was down $1.57 at $96.10 on reports it was in talks with China's biggest computer maker to sell its personal computer business. Hong Kong-listed Lenovo Group Ltd. issued a statement confirming that it was in talks with a large technology company, but did not reveal the name, saying negotiations were confidential. The Wall Street Journal, citing unidentified sources, reported that IBM and Lenovo plan to create a new company that would own IBM's PC business, with Lenovo holding a majority stake.

Shares of Intel Corp. (INTC) fell 2.2 percent to $23.48 after the world's largest chip maker said it will miss its 2004 product cost reduction targets because of a string of product delays and problems.

Shares of Nvidia (NVDA) jumped 5 percent to $22.81 after it said it would supply Sony Computer Entertainment with graphics technology for its highly anticipated, next-generation PlayStation computer game system.

A number of airlines fell after Lehman Brothers analyst Gary Chase downgraded his rating on the U.S. airline industry and several major carriers, predicting little earnings improvement in 2005. Continental Airlines Inc. (CAL) fell 2 percent to $11.86.

About 2.7 billion shares were traded on Nasdaq, well above the 1.69 billion daily average last year. There were 1.5 billion shares changing hands on the New York Stock Exchange, just above the 1.4 billion daily average for last year.

About three stocks fell for every one that rose on the NYSE and on Nasdaq.

The Russell 2000 index, which tracks smaller company stocks, was down 13.53, or 2.12 percent, at 625.50.

Overseas, Japan's Nikkei stock average slid 0.99 percent. In Europe, France's CAC-40 added 0.53 percent, Britain's FTSE 100 rose 0.12 percent and Germany's DAX index was up 0.45 percent.

Reuters and the Associated Press contributed to this report.