Shares on Wall Street retreated Thursday after the Labor Department said claims for unemployment benefits rose unexpectedly, renewing concerns about the pace of a recovery.
The disappointing news about the jobs market came minutes after investors learned that the chip maker Intel was acquiringMcAfee. The acquisition, valued at $7.68 billion, helped cushion the fall from the rise in unemployment benefit claims. Under the deal, Intel will pay $48 a share in cash, a 60 percent premium over McAfee’s Wednesday closing price of $29.93.
McAfee shares were up 57.5 percent on Thursday. Intel shares fell 2.6 percent.
The two announcements are the latest to provide a conflicting picture of the recovery. Economic reports have regularly shown the pace of a rebound is slowing and companies are skittish about adding workers. That has hurt stocks in recent weeks. It has also stoked fears about the economy falling back into recession.
At the same time, corporate announcements, including earnings reports, have largely showed companies are doing well. Mergers and acquisitions activity is often considered a positive sign because it means companies are willing to spend money to grow their businesses and are confident that business prospects are improving.
The Labor Department said initial claims for unemployment benefits rose by 12,000 to 500,000 last week from an upwardly revised 488,000 a week earlier. Economists polled by Thomson Reuters expected claims to fall slightly.
High unemployment is considered the biggest hurdle to a stronger recovery because people worried about jobs have scaled back their spending. Consumer spending accounts for the bulk of the country’s economic activity.
In early morning trading, the Dow Jones industrial average fell 114.47 points, or 1.1 percent. The broader Standard & Poor’s 500-stock index fell 12.29 points, or 1.12 percent, while Nasdaq fell 21.47, or 0.98 percent.
The Dow has risen the last two days, climbing 1.1 percent during that stretch.
Volume has been particularly light, even by summer standards, meaning many investors are still uncertain about the economy. If reports continue to show the economy is growing, even slowly, it could alleviate fears of a second recession. That, in turn, could bring many investors back into the stock market.
Another indicator, the monthly index by the Federal Reserve Bank of Philadelphia showed that manufacturing in the Mid-Atlantic states contracted unexpectedly in August. The Federal Reserve Bank’s business activity index fell to minus 7.7 in August from July’s 5.1. The August reading was the lowest since July 2009. Any reading below zero indicates a shrinking in the region’s manufacturing.
Manufacturing activity had shown consistent growth earlier this year as the recovery took hold. But over the summer, activity has waned a bit. So signs of new growth would add further reassurances that the economy is still growing.
And the Conference Board, a private research group, said it index of leading economic indicators rose 0.1 percent in July after dropping 0.3 percent in June. Economists polled by Thomson Reuters had expected a gain of 0.2 percent.
The leading indicators gauge had risen sharply from spring 2009 through March of this year. It has flattened out since then. Businesses are no longer building up their stocks. Consumers are saving at higher rates and spending less.
In other corporate news, Sears Holdings reported that its second-quarter loss was cut in half as profit margins improved at its Kmart chain. But revenue at stores open at least a year, a crucial measure of strength in the retail industry, fell during the quarter. Sears shares dipped slightly.
Bond prices erased most of their losses after the weak jobs report. Investors often move into the safety of government bonds when there are signs the economy is not strong. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.66 percent from 2.64 percent late Wednesday. Its yield is often used to help set interest rates on mortgages and other consumer loans.
Overseas, Britain’s FTSE 100 fell 0.5 percent, Germany’s DAX index fell 0.5 percent and France’s CAC-40 dropped 0.5 percent. Japan’s Nikkei stock average rose 1.3 percent.
http://www.nytimes.com/2010/08/20/business/20markets.html?ref=business
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