Business

NEW YORK (AP) ― Wall Street retreated Tuesday after disappointing reports from aluminum producer Alcoa Inc. and chip maker Advanced Micro Devices Inc. raised concerns that corporate America's first-quarter results might come in weaker than expected.

The stock market's decline was modest, indicating to analysts that investors are more level-headed than they were just a few weeks ago when the global banking system was in crisis mode. Still, given a 54 percent drop in Alcoa's first-quarter profit, a 15 percent drop in AMD's first-quarter sales and a lowered profit outlook at rival chip maker Novellus Systems Inc., it appears to some on Wall Street that they might have to pare back their profit estimates for this year.

"While investors had a pretty much washed-out, pessimistic view of the economy, those investors also had a unrealistic view on earnings .... It seems investors are conflicted between their pessimism on the economy and their optimism on earnings," said Jack A. Ablin, chief investment officer at Harris Private Bank. "The good news is, we've moved away from emotional, jittery trading to a reconciliation of values. The market is substantially more rational than it was."

The nation's major banks are not scheduled to report their earnings until next week. But investors, who sent stocks soaring last week on the growing belief that the worst of the credit crisis has passed, got some bleak news Tuesday on the financial sector.

Washington Mutual Inc. said it is raising $7 billion by selling a stake to a private equity investment group, but the Seattle-based thrift also said it will lose $1.1 billion during the first quarter, stash away $3.5 billion for loan losses and cut its quarterly dividend to shareholders to a penny from 15 cents.

Meanwhile, the IMF said that despite "unprecedented intervention" the Federal Reserve and other central banks, "financial markets remain under considerable strain." The group estimated that potential credit-related losses for the financial industry had reached $945 billion as of March - a "staggering number," said Hugh Johnson, chief investment officer of Johnson Illington Advisors, following Standard & Poor's forecast of about $250 billion in credit-related losses and Goldman Sachs' prediction of some $460 billion.

"Forecasters can be wrong, and hopefully they'll be wrong, but that's a much higher number than we'd been thinking about," Johnson said.

In late morning trading, the Dow Jones industrial average fell 42.42, or 0.34 percent, to 12,570.01.

Broader stock indicators also dropped. The Standard & Poor's 500 index fell 5.56, or 0.41 percent, to 1,366.98, and the Nasdaq composite index fell 8.37, or 0.35 percent, to 2,356.46.

Government bonds were little changed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was at 3.53 percent, the same as late Wednesday.

Tuesday's dreary reports arrived ahead of the release of minutes from the Federal Reserve's meeting March 18, when it lowered interest rates by three-quarters of a point to 2.25 percent.

The credit markets have been performing much better after rate moves and massive lending efforts by the Fed, but many experts say it will be hard for the credit markets to loosen further with the housing market still on the decline. The National Association of Realtors said Tuesday that February's pending home sales fell by 1.9 percent compared to January, worse than many analysts had predicted.

WaMu shares fell $1.21, or 9 percent, to $11.94. The bank said that by the end of June, it will no longer purchase mortgages from brokers and close all its freestanding home loan offices.

Alcoa shares slipped 37 cents to $37.07, having fallen 4 percent Monday ahead of its earnings release.

AMD shares fell 23 cents, or 3.6 percent, to $6.11, and Novellus fell $1.76, or 7.4 percent, to $22.05.

Light, sweet crude fell 92 cents to $108.17 a barrel on the New York Mercantile Exchange.

Gold prices fell, while the dollar traded mixed against other major currencies.

The Russell 2000 index of smaller companies fell 0.33, or 0.05 percent, to 712.35.

Declining issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 369.3 million shares.

Overseas, Japan's Nikkei stock average fell 1.49 percent. In afternoon trading, Britain's FTSE 100 slid 0.88 percent, Germany's DAX index lost 1.01 percent, and France's CAC-40 dropped 1.00 percent.

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