Technology stocks drove a broad-based U.S. sell-off on Thursday as a brokerage took a dim view of demand prospects for the semiconductor sector, while economic data underscored the fragility of the recovery.
Bank of America-Merrill Lynch cut its 2010 growth outlook for the semiconductor industry on concerns about a rising inventory glut. It downgraded 10 stocks, including Intel Corp
The downgrades were a setback for those betting that the technology sector would fare better than others as the recovery takes hold. Chips are essential to a broad range of products, including computers and mobile devices.
Investors have ridden the tech wave since the S&P 500 hit a 12-year closing low on March 9. Shares of Dow component Intel fell 4.1 percent to $19.30 on Nasdaq. The PHLX Semiconductor Index <.SOXX> dropped 3.4 percent.
On the economic front, the Conference Board's index of U.S. leading economic indicators, a gauge of the U.S. economy's prospects, rose 0.3 percent to 103.8, the highest since September 2007. But the increase fell short of Wall Street's expectation for a rise of 0.5 percent.
There's this feeling that the economy has lost momentum from the third quarter, said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. The market gained traction to the downside when the disappointing economic indicators came out.
There was also more disconcerting news in housing. A record one in seven U.S. mortgages were in foreclosure or at least one payment was past due in the third quarter, according to fresh data signaling that the housing market's recovery will be tepid at best.
The U.S. dollar's gain was another headwind for stocks as it pressured prices of natural resources like crude oil and gold, pushing down shares of companies such as Alcoa
The Dow Jones industrial average <.DJI> shed 93.87 points, or 0.90 percent, to end at 10,332.44. The Standard & Poor's 500 Index <.SPX> slid 14.90 points, or 1.34 percent, to 1,094.90. The Nasdaq Composite Index <.IXIC> dropped 36.32 points, or 1.66 percent, to 2,156.82.
Bank of America-Merrill Lynch said notions of a strong rebound for the semiconductor industry next year may not be realistic.
Texas Instruments shares fell 3.4 percent to $24.88 on the New York Stock Exchange, while Marvell Technology Corp
Shares of iPod and iPhone maker Apple Inc
The sell-off was broad-based, with all but four of the Dow's 30 stocks ending lower. Among other hard-hit sectors were financials, industrials and consumer discretionaries.
An S&P index of energy shares <.GSPE> slid 2.1 percent after U.S. front-month crude futures, which expire on Friday, fell $2.12 lower, or 2.7 percent, to settle at $77.46 a barrel on the New York Mercantile Exchange.
The rising greenback hurt other the prices of other commodities. Shares of Alcoa, an aluminum producer, lost 3.9 percent to $13.22 on the NYSE.
Financials also took a hard knock, with the KBW bank index <.BKX> down 2 percent, while the Dow Jones home construction index <.DJUSHB> declined 1.7 percent.
Health insurance stocks fell a day after U.S. Senate Majority Leader Harry Reid released an $849 billion healthcare reform bill that analysts said would extend coverage to tens of millions of the uninsured.
Goldman Sachs said in a note the bill may cause problems for managed-care companies regarding profit margin regulation.
The Morgan Stanley Healthcare Payor index <.HMO> fell 1.2 percent. Even so, the benchmark S&P 500 is up 61.8 percent from its 12-year closing low of March 9.
(Reporting by Ellis Mnyandu; Editing by Jan Paschal)