NEW YORK (CNN/Money) - U.S. stocks fell Monday, handing the Dow Jones industrial average a sixth straight loss as investors bet that the cloudy outlook for corporate profits will continue eating away at 2001's year-end rally.
Two weeks old, the new year is already off to a tough start for the major indexes, which haven't gained since 1999. The Dow industrials and Standard & Poor's 500 are lower in 2002 while the Nasdaq composite index clings to a slight gain.
Blame some of Monday's losses on words from Merrill Lynch. The brokerage firm advised clients to sell stocks and buy bonds during a session when at least 30 companies suffered analyst downgrades.
The week also kicks off a dismal period for December-quarter results. Corporate profits are expected to have tumbled more than 20 percent during the final three months of 2001 as the recession lingered and the nation's unemployment rate jumped to its highest level in more than six years.
"I think that Q4 results will be terrible," Chuck Hill, director of research at earnings tracker First Call, told CNNfn's Market Call.
But at least one analyst called the decline a pause amid a longer advance that began when stocks bottomed in late September.
"A pullback after three months of run-up isn't bad," Todd Eberhard, of Eberhard Investment Associates, told CNNfn's Market Call.
The Nasdaq fell 31.72 points, or 1.6 percent, to 1,990.74, narrowing its 2002 gain to 2 percent. The Dow industrials lost 96.11, or 1 percent, to 9,891.42, widening this year's loss to 1.3 percent. Off 0.5 percent in 2002, the Standard & Poor's 500 index declined 7.19 points, or 0.6%, to 1,138.41.
More stocks fell than rose. On the New York Stock Exchange, declining issues topped advancing ones 9-to-6 as 1.2 billion shares changed hands. Nasdaq losers beat winners more than 2-to-1 as 1.7 billion shares traded.
In other markets, Treasury securities were little changed while the dollar held steady against the yen and euro.
Favoring bonds
A rally during the final three months of 2001 may have sent share prices to "extreme" levels, Richard Bernstein, Merrill Lynch's chief U.S. investment strategist, said in a note to clients.
The brokerage house cut the stock allocation in its model portfolio to 50 percent from 60 percent and redirected the money to bonds, which now stand at 30 percent, up from 20 percent. Cash holdings stay steady at 20 percent.
Among Monday's losers, Ericsson (ERICY: down $0.35 to $4.85, Research, Estimates) and Nokia (NOK: down $1.32 to $21.49, Research, Estimates) fell after ABN Amro cut estimates for the mobile phone makers.
Another wireless company, Nextel (NXTL: down $1.64 to $8.36, Research, Estimates), also tumbled after Lehman Brothers downgraded its shares and warned about near-term challenges.
Falling energy prices hurt Anadarko Petroleum (APC: up $0.10 to $49.06, Research, Estimates), which cut fourth-quarter and full-year financial guidance and said it will slash capital spending in half for 2002.
But Fannie Mae (FNM: Research, Estimates), which buys and sells mortgages, benefited from a refinancing boom. The company said it earned $1.44 billion, or $1.40 a share, excluding items, up from $1.16 billion, or $1.12 a share, a year earlier.
The market's losses came one session after Federal Reserve Chairman Alan Greenspan spooked investors by saying the economy, though stabilizing, remains weak.
The Dow industrials gave back all of their gains for the year Friday, even as Greenspan -- in a San Francisco speech -- left open the door for another interest-rate cut at the Fed's meeting later this month. Central bankers lowered borrowing costs 11 times last year.
Seven Dow components report quarterly results this week, including Citigroup (C: down $0.19 to $48.88, Research, Estimates), IBM (IBM: down $2.26 to $118.05, Research, Estimates) and United Technologies (UTX: down $1.60 to $62.24, Research, Estimates). Some of Nasdaq's best known names also roll out numbers; Sun Microsystems (SUNW: down $0.26 to $13.06, Research, Estimates), Yahoo! (YHOO: down $1.15 to $19.01, Research, Estimates), and eBay (EBAY: down $0.71 to $63.16, Research, Estimates) are among them.
The results won't be pretty. Profits at S&P 500 companies are expected to drop 22.1 percent, on average, for the fourth quarter of 2001, according to First Call, following the third quarter's nearly 22 percent decline. After another decline in the current quarter, earnings aren't expected to rebound until this spring.
"We will be challenged by fourth-quarter earnings," Larry Wachtel, market analyst at Prudential Financial, told CNNfn's Street Sweep.
Still, First Call's Hill said the pace of warnings has slowed. And he added that most of the bad news about sluggish demand may be built into stocks.
"I think comments [from companies] going forward will be much better than they were in the past," Hill told Market Call. "The big uncertainty going forward is the slope of the ramp up."
Monday, meanwhile, marked the two-year anniversary of the Dow industrials' all-time high. On Jan. 14, 2000, the Dow closed at 11,722.98, more than 15 percent above current levels.
Still, stocks have rallied after plunging during the week after the Sept. 11 terrorist attacks. The Nasdaq is up more than 39 percent since Sept. 21 while the Dow sports a 20 percent gain.
Nasdaq's biggest loser Monday, Miravant Medical Technologies (MRVT: down $7.31 to $2.44, Research, Estimates), fell more 74 percent. The company said tests of its vision-loss drug showed disappointing results.
The losses continued for Kmart (KM: down $0.46 to $2.84, Research, Estimates). Shares of the retailer, which began the year at nearly $6, fell below $3 after Standard & Poor's became the latest firm to turn cautious on Kmart's prospects.
But investors sought safety in drug and tobacco stocks, whose profits are less tied to the business cycle. American Home Products (AHP: up $0.82 to $63.87, Research, Estimates), Johnson & Johnson (JNJ: up $0.69 to $58.92, Research, Estimates), and Philip Morris (MO: up $0.61 to $48.26, Research, Estimates) rose. 
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