An early surge in trading on Monday on better-than-expected manufacturing data pushed stock prices to levels that proved too tempting, and investors decided to cash in some of the gains from the recent weeks of higher trading.
Stock prices have been moving sharply higher since the war with Iraq, and have reached their highest levels of 2003. Most market observers believed that the 9,000 level for the Dow would provide some resistance. In the meantime, investors will be waiting for the Friday report on May employment. Although the economy still seems to be struggling to find support, the Labor Department statistics may show a modest amount of new job creation.
The Dow Jones industrial average moved above the 9,000 level for the first time since July of last year but couldn't hold onto the gains. At the close, the blue chip index was up 47.55 points to 8,897.81. The Nasdaq composite Index lost 5.16 points to close at 1,590.75. The tech index failed to hold its early gains after moving above the 1,600 level.
The Institute for Supply Management reported that its manufacturing index was 49.4 percent last month, up from 45.4 in April. A reading below 50 means manufacturing activity is slowing; still, the figure was better than the 48.5 that economists were expecting.
However, the Commerce Department said spending on construction projects dipped by 0.3 percent in April from March to a seasonally adjusted annual rate of $862.6 billion. It was the third straight month that spending fell and was weaker than the 0.2 increase analysts were expecting.
Stocks have surged in recent weeks on a wave of better-than-expected earnings and positive economic data. Analysts say investors are more confident about an economic rebound by year's end, although the market is still vulnerable to sharp declines on profit-taking.
"There's an undercurrent of improving economic activity," said A.C. Moore, chief investment strategist for Dunvegan Associates. "It's hard to see on a month-to-month basis, but if you squint your eyes you can see it. Consumer confidence is returning ... that spells for a better market performance as we look at a very low interest rate."
ImClone (Nasdaq: IMCLE) surged $5, or 17.5 percent, to $33.50 after the biotech company's cancer drug Erbitux showed effectiveness in clinical trials.
Genentech (NYSE: DNA) climbed $4.12, or 6.6 percent, to $66.73 after researchers said the biotech company's experimental drug Avastin modestly lengthened survival for colon cancer patients in clinical trials.
AMR (NYSE: AMR) rose 61 cents, or 9.6 percent, to $6.95 after Goldman Sachs raised its stock rating on the parent of American Airlines to Outperform from In-line.
Decliners included Dow components Johnson & Johnson (NYSE: JNJ), which fell $1.13 to $53.22, and Intel (Nasdaq: INTC), which lost 44 cents to $20.38.
Advancing issues outnumbered decliners 9 to 5 on the New York Stock Exchange. Consolidated volume was heavy at 2.19 billion shares, although slightly lower than the 2.29 billion traded Friday.
The Russell 2000 index, a barometer of smaller company stocks, rose 1.63, or 0.4 percent, to 442.63.
Overseas, Japan's Nikkei stock average finished 1.5 percent higher Monday. In Europe, France's CAC-40 rose 1.9 percent, Britain's FTSE 100 advanced 2 percent and Germany's DAX index gained 2.8 percent.
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