NEW YORK (CNN/Money) -
A midday rally ran out of steam by the close Wednesday, as the Nasdaq composite crossed 2,000 for the first time in nearly two years, only to fall back and drag the rest of the market with it.
On Wednesday, the Dow Jones industrial average (up 19.78 to 9873.42, Charts) edged up 0.2 percent, the Standard & Poor's 500 (down 1.89 to 1064.73, Charts) index fell 0.2 percent and the Nasdaq composite (down 19.82 to 1960.25, Charts) ended down 1 percent. All three major indexes had posted solid gains until early in the afternoon.
Shortly after 12:30 p.m., the Nasdaq edged above 2,000 -- seen more as a psychological and less a key technical barrier -- before retreating. The last time the Nasdaq hit 2,000 was on Jan. 15, 2002, when it closed at 2,000.91.
For the Dow, the next key psychological level is 10,000. The last time the Dow closed above 10,000 was May 24, 2002, when it ended at 10,104.26. The average has not crossed the barrier during the day since May 31, 2002.
"It looks to me like the market is getting a little psyched-out with these psychological levels, particularly 2,000 on the Nasdaq," said David Briggs, head of equity trading at Federated Investors. "After hitting that, people have pulled back a little, but there's still plenty of money on the sidelines. It could inch back up."
Trading Thursday could be fairly rangebound, analysts speculate, as investors wait for Intel's mid-quarter update, due after the bell Thursday and the monthly read on unemployment, due out before the open Friday.
Ahead of that, investors will take in the weekly report on jobless claims, due out before the open Thursday. The report is forecast to show that 354,000 people filed new unemployment claims last week, little changed from the 351,000 new claims filed the previous week.
Economists surveyed by Briefing.com expect that the monthly report Friday will show that the unemployment rate held steady in November at 6.0 percent and that employers added 150,000 jobs to their payrolls after adding 126,000 in October.
A jump in payrolls would add to other recent signs of a labor market recovery and would be significant for an extension of the stock market rally, analysts said.
New jobless claims have been falling for the past few weeks, while November job-cut announcements fell sharply from October levels, outplacement firm Challenger, Gray & Christmas said Tuesday.
"I think the unemployment report is the main indicator people are waiting for this week," said Tom Schrader, head of listed trading at Legg Mason.
Additionally, Intel's (INTC: down $0.51 to $33.34, Research, Estimates) update could provide a boon to technology shares as many analysts are forecasting that the technology behemoth will likely raise its revenue forecast for the current quarter and confirm the bullish cycle for chips that other competitors have already cited.
Wednesday's market
Optimism about the economy pushed the Dow and S&P 500 to their highest levels in 18 months Monday, and the Nasdaq to its highest level in about 22 months. However, all three major indexes suffered a mild bout of profit-taking Tuesday.
The early gains Wednesday seemed to indicate a willingness among investors to extend the rally, even with some caution ahead of Friday's monthly jobs report. But investors lost much of their nerve by the close Wednesday.
Among the stocks on the move, Dow component General Motors (GM: up $2.26 to $45.54, Research, Estimates) rallied 5.2 percent after the company reported a more than 20 percent gain in U.S. vehicle sales in November.
Competitors Ford Motor Co. (F: up $0.26 to $13.18, Research, Estimates) and Chrysler (DCX: up $0.90 to $39.44, Research, Estimates) saw declines. Late Tuesday GM also dropped tentative plans to sell its massive commercial mortgage arm, expressing confidence it can find ways to access new funding.
Fellow Dow stock Merck (MRK: up $1.50 to $43.63, Research, Estimates) gained 3.5 percent after the company forecast that earnings would rise by a single-digit percentage rate next year. The drugmaker is expected to post lower profits for 2003.
GM and Merck were among the NYSE's most-active issues.
Shares of ADC Telecommunications (ADCT: up $0.36 to $2.80, Research, Estimates) jumped 14.8 percent and topped the Nasdaq's most-active list. Late Tuesday, the company reported its first quarterly profit in more than two years on earnings that beat estimates. On Wednesday, brokerages Deutsche Securities and Needham both upgraded the stock.
Business software maker Oracle (ORCL: up $0.50 to $12.90, Research, Estimates) gained 4 percent in active Nasdaq trading after UBS upgraded the stock to "buy" from "neutral," saying recent research suggests Oracle's current quarter is likely to show better-than-expected earnings growth.
Market breadth was negative. On the New York Stock Exchange, where 1.40 billion shares traded, advancers edged decliners. On the Nasdaq, losers beat winners five to three, on trading volume of 2.21 billion shares.
A couple of economic reports were released Wednesday. Before the start of trading, the government said third-quarter productivity rose at a 9.4 percent annual rate, above the previously reported 8.1 percent rate and a bigger climb than economists were expecting.
About half an hour after the market opened, the Institute for Supply Management released its reading on the services sector of the economy in November. The index declined to 60.1 last month, much lower than the expected reading of 64.0 and October's 64.7. Still, the reading was well above 50, the level that draws the line between expansion and contraction in the sector.
Lurking in the background were worries about the weakening dollar. The greenback hit record lows against the euro again overnight for the fourth straight day. The dollar also declined versus the yen.
Treasury prices edged lower, sending the 10-year note's yield up to 4.40 percent from 4.38 percent late Tuesday. Bond prices and yields move in opposite directions.
NYMEX light sweet crude oil futures gained 32 cents to settle at $31.10 a barrel. COMEX gold rose 20 cents to end at $404.80 an ounce.
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