Semiconductor sector downgrade sparks fall

Dow Jones:12,090.03 (–79.85) Nasdaq:2,745.63 (–39.04) S&P 500:1,310.14 (–11.01)

US STOCKS slid yesterday, erasing last week’s advance, as escalating violence in Libya sent oil higher and chipmakers tumbled after Wells Fargo reduced its recommendation on the industry.

Intel, the world’s largest semiconductor company, slid 1.6 per cent following Wells Fargo’s downgrade, while Micron Technology lost 5.2 per cent.

JDS Uniphase fell 6.9 per cent, the most in the Standard and Poor’s 500 Index, after Ciena’s revenue forecast missed analysts’ estimates.

Alcoa, Intel and Hewlett-Packard lost at least 1.4 per cent to lead declines in the Dow Jones Industrial Average.

Oil for April delivery surged as much as 2.4 per cent at $106.95 a barrel.

“Geopolitical concerns and the price of oil are the major things driving the market,” said John Kattar, chief investment officer at Eastern Investment Advisers in Boston, which manages $1.7 billion. “It’s very volatile with the news flow being so dominated by the Middle East,” he said.

The S&P 500 has lost 2.5 per cent from a 32-month high on February 18th amid concern higher energy prices will hurt consumer spending and corporate profits.

Oil rose to a 29-month high as escalating violence in Libya bolstered concern that supply disruptions may spread through the Middle East. Crude climbed after fighting between Libyan rebels and troops loyal to Muammar Gadafy intensified.

Hedge funds raised purchases of futures to a record for a second week on speculation unrest will cut output further. Citigroup increased its Brent oil price estimate, saying the threat of more disruptions supports a “fear premium”.

Gains in stocks earlier yesterday also followed the announcement of about $15 billion in potential global mergers and acquisitions. “Companies have a lot of cash on their balance sheets and they’re under pressure to use it, whether it’s MA, buybacks or dividends,” said Matt McCormick, a money manager at Cincinnati-based Bahl and Gaynor.

“Investors are taking risk off now, and there’s rotation to higher-quality stocks, which may not be as impacted by geopolitical risks and higher commodity and energy costs,” he said. – (Bloomberg)