U.S. stocks fall on economic ‘soft patch’ worries May 17, 2011

U.S. stocks fell for a third straight session after housing data and a slashed forecast from Hewlett-Packard Co. added to fears of further economic weakness, but shares ended off the day’s lows, helped by recent strength in earnings.

The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed DJIA -0.55% closed down 68.79 points, or 0.6%, at 12,479.58, after losing almost 170 points. Also responding to the day’s economic data, Treasurys rose and oil futures tumbled to the lowest since February.

Shares of Hewlett-Packard /quotes/comstock/13*!hpq/quotes/nls/hpq HPQ +0.03% led Dow decliners, dropping 7.3% after the computer maker cut its forecast for the current quarter and full year

Shares of companies whose products have been feeding a global manufacturing rebound also were hit hard. Caterpillar Inc.’s /quotes/comstock/13*!cat/quotes/nls/cat CAT +0.71% shares lost 3.8%, while aluminum-producer Alcoa Inc. /quotes/comstock/13*!aa/quotes/nls/aa AA +0.06% fell 2.8%.

The S&P 500 Index /quotes/comstock/21z!i1:in\x SPX -0.04% ended down 0.49 point, or 0.04%, at 1,328.98, also recovering the bulk of the day’s losses. Industrials and natural-resource stocks led decliners, while utilities and financials rose.

Investors are concerned that the U.S. economy is in for another period of sluggish growth, much like it suffered early last summer, when the post-recession rebound should have been in full swing. That year-ago cooling contributed to the Federal Reserve’s decision to unveil a second round of extraordinary monetary stimulus, or quantitative easing.

“It’s a carryover of the sense that some of the recent economic data points, on a month-to-month basis, have softened,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott, of the day’s stock decline.

Plus, there’s concern about what will happen when the Fed wraps up its $600 billion in bond purchases, at the heart of what’s known as QE2. At the same time, China’s efforts to slow down its economy could cool demand for commodities.

“The combination of those factors is unsettling or worrisome for investors who are long that risk exposure,” Luschini added. “You’re seeing some continuing unwinding of the risk-on trade in the materials and consumer-sensitive sectors.”

Of the three major indexes, only the Nasdaq avoided extending losses to a third session.

The Nasdaq Composite Index /quotes/comstock/10y!i:comp COMP +0.03% ended up 0.9 point, or 0.03%, to 2,783.21.

Volume was roughly in line with the past month, with 971 million shares traded hands on the New York Stock Exchange. Decliners outpaced advancers 17 to 12.

Results from major retailers met a varying reception.

Wal-Mart Stores Inc. /quotes/comstock/13*!wmt/quotes/nls/wmt WMT -0.11% , a Dow component, fell 0.9%. The world’s largest retailer said first-quarter profit rose 3%, with demand from China and Mexico offsetting a drop in same-store sales at its U.S. unit. Falling Walmart U.S. sales signaled other retailers are luring more of the value chain’s domestic customers, though.