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Mixed J&J earnings leave investors little to cheer

INVESTORS grew cautious Tuesday after quarterly sales at Johnson & Johnson fell short of expectations and an influential analyst stirred worries that bank shares are overheated.

Most stocks posted modest losses yesterday, a day after major indexes finished at their best levels in a year. The Dow Jones industrial average slipped 15 points, though the Nasdaq composite index edged higher.

Stocks could get a bounce today from Intel Corp., which posted earnings and sales after the closing bell that topped expectations. The leading chipmaker also said business is improving. The stock rose 4 percent in after-hours trading.

J&J was the first in a series of big companies to report quarterly results this week, and a 5 percent drop in sales at the maker of health care products fanned concerns that companies have had to rely on cost-cutting to boost profits, as they did in the first half of the year. Investors are worried that earnings will suffer if sales don't improve.

The market's unease intensified after banking analyst Meredith Whitney lowered her rating on Goldman Sachs Group Inc. to "neutral" from "buy." Goldman's stock had risen 34 percent since Whitney upgraded the stock to "buy" in mid-July. The bank reports results on Thursday.

Health care stocks stumbled after J&J's report and as the Senate Finance committee approved a version of the health care overhaul bill.

There were some pockets of green on trading screens. An agreement by Cisco Systems Inc., which makes computer networking gear, to buy Starent Networks Corp. for $2.9 billion lifted shares of technology companies.

The modest scale of the day's slide suggested that traders are afraid of walking away from a market that has spent little time in reverse since bouncing off 12-year lows seven months ago.

Earnings reports are likely to continue to shape the market's sentiment for the rest of this week.

"The market only makes sense at these levels if earnings can grow at a decent pace," said Jerry Webman, chief economist at OppenheimerFunds Inc. "What we're hearing now is OK, but you don't get long-term earnings growth out of cost cutting."

The Dow fell 14.74, or 0.2 percent, to 9,871.06. On Monday, it came within 69 points of the psychological barrier of 10,000, a level not seen in a year.

The Standard & Poor's 500 index fell 3.00, or 0.3 percent, to 1,073.19, its first loss after six days of gains. The Nasdaq rose 0.75, or less than 0.1 percent, to 2,139.89.

Linda Duessel, equity market strategist at Federated Investors, said stocks could drift after the strong rally. "I don't know if we have to pull back so much as take a break," she said.

Investors have sent stocks higher in recent days on hopes that third-quarter earnings reports will signal that the economy is improving.

JPMorgan Chase & Corp. reports on Wednesday. Goldman Sachs, Citigroup Inc. and Bank of America Corp. also report this week. Goldman fell $2.92, or 1.5 percent, to $187.23 after the downgrade.

Howard Ward, portfolio manager for GAMCO Growth Fund in Rye, New York, said investors are likely to lock in some profits following a rally that propelled the S&P 500 index up 58.6 percent since March and that future gains will be more modest.

"The market is going to be grinding its way higher from here," he said. "The fire sale is over."

Among stocks, Johnson & Johnson fell $1.52, or 2.4 percent, to $61.01.

The ICE Futures U.S. dollar index, which measures the dollar against other major currencies, dropped to a 14-month low. Gold subsequently hit a record high $1,069.70 an ounce, while oil rose 88 cents to settle at $74.15 a barrel on the New York Mercantile Exchange.

Bond prices rose, pushing yields down, after steep losses from last week. The yield on the benchmark 10-year Treasury note fell to 3.33 percent from 3.38 percent late Friday. Bond markets were closed Monday.

Three stocks fell for every two that rose on the New York Stock Exchange, where volume came to a light 1.1 billion shares compared with 946.8 million Monday.

The Russell 2000 index of smaller companies fell 2.11, or 0.3 percent, to 611.70.


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