Wall Street report: Tues close

A $15bn melt-down in the market value of pharmaceutical giant

Shares had pushed higher after Alan Greenspan and his colleagues on the Federal Reserve Board voted to cut interest rates for the 11th time this year, trimming a key rate from 2% to 1.75%.

The Dow Jones Industrial Average, which had sported a triple digit gain after the Fed's announcement, finished the day down 33.08 points or 0.33% to 9,888.37. The Nasdaq Index, as high as 2,032 in mid-afternoon, clung to a gain of 9.81 points or 0.49% to 2,001.93.

Merck became the culprit in the late sell-off after it said profits for 2002 would be flat, its first year without profit growth since 1994. The third biggest pharmaceutical company in the world blamed slower than expected sales of the Vioxx painkiller in part for the profit warning, which stunned analysts.

Shares in Merck recorded their biggest one-day drop since the crash of 1987, tumbling $6.29 or 9.4% to $60.70. Other pharmaceuticals were lower in sympathy, with AstraZeneca sliding 76 cents or 1.7% to $44.28.

'Merck's sudden meltdown has compressed the Dow's gains,' said Alan Ackerman, senior vice president and market strategist at investment firm Fahnestock & Co. 'There's little doubt that Merck has prompted sellers to take what little strength the market indexes had.'

Markets had been rallying on the belief that the US economy, boosted by interest rates reduced to their lowest levels in 40 years, a tax cut and hopes for a $100bn stimulus package from Congress, would re-bound possibly as early as the first quarter of the New Year. But the Fed talked about risks rather then recovery ahead for the US economy and it left the door open for more rate cuts by saying that 'the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.'

Techs had led the markets higher from the opening bell. A statement that its fourth quarter might top forecasts from Nokia, the world's biggest mobile 'phone maker, lent a firm tone to the sector. Nokia shares leapt $1.71 or 7.2% to $25.50. Motorola, second only to Nokia, firmed 17 cents or 1% to $16.82. Ericsson jumped 19 cents or 3.3% to $6.01. Intel was ahead 24 cents or 0.7% to $33.19.

Compaq Computer continued its retreat on fears its proposed merger with Hewlett-Packard could collapse. Compaq shares slumped 21 cents or 2.2% to $9.49. Hewlett-Packard, with chief executive Carly Fiorina seen as fighting to keep her job, slid $1.01 or 4.4% to $21.99.

McDonald's was marked down 52 cents or 1.9% to $26.50 as Lehman Brothers downgraded the shares, suggesting rivals were better positioned to reward investors. Enron, the energy trader that declared bankruptcy two weeks ago, fell nine cents or 11% to 72 cents.

Among Dow components, American Express gained 26 cents or 0.8% to $34.26, Walt Disney recovered 77 cents or 3.6% to $22.40 in a media sector hammered lower on Monday, and General Motors tumbled $1.69 or 3.4% to $48.65 on news Fiat would shift its 6% shareholding into convertible bonds.