NEW YORK -- Stocks closed lower yesterday amid renewed concerns about the weak economy after a report of lower-than-expected 10-day car sales and disappointing figures on retail sales for September.
Ending a two-day rally, the Dow Jones industrial average dropped 5.94 points, to 3,195.48. The slump was led by a decline in shares of International Business Machines, Aluminum Co. of America and International Paper.
Stocks were whipsawed in the final hour as a computer-guided purchase of 14,000 November Standard & Poor's 500 put options threw the market into a tailspin. A put option is a contract that grants the buyer the right to sell a specific number of shares in a company at a specific price by a specific date.
Declining stocks outnumbered advancing issues by about 7 to 6 on the New York Stock Exchange. The decline in stocks was led by shares of long-distance telecommunication, telephone, chemical, food and forest product companies. Trading was moderate, with about 177 million shares trading on the Big Board.
"The economic news certainly isn't getting brighter," said Ricky Harrington, director of investment policy at Marion Bass Securities.
New data showed that retail sales are restrained and that inflation is subdued. Retail sales last month rose 0.3 percent, below analysts' estimates. Producer prices increased 0.3 percent, in line with expectations. Auto sales fell 2.1 percent in the most recent 10-day period.
"The combination of economic news means the economy is a long way from on the road to recovery," Mr. Harrington said.
The disturbing economic news offset optimism stemming from a rise in Treasury bond prices and the release of better-than-expected earnings from such leading companies as Bank of New York, CBS, Bausch & Lomb, Mead and Gannett.
About 87 companies in the S&P; 500 index have reported earnings so far. Although earnings are an average 1.6 percent below analysts' estimates, 63 of the companies have reported earnings that exceed last year's results.
"The question now is whether earnings will show consistent improvement over the next several quarters," Marion Bass' Mr. Harrington said.
Medco Containment Services, the most actively traded stock, declined 1 5/8 , to 27, on concerns about its earnings outlook.
Copley Pharmaceutical closed 4 1/2 points above its initial public offering price of $19 a share. Copley Pharmaceutical makes off-patent prescription and over-the-counter pharmaceutical products.
Merck continued to rally. The stock gained 7/8 , to 43 1/2 , after it was added to the "buy" list at Kidder, Peabody. Merck was also mentioned positively in the Wall Street Journal's "Heard on the Street" column Tuesday.
MCI Communications fell 7/8 , to 35 5/8 , after analysts at Morgan Stanley and Smith Barney, Harris Upham removed the stock from their "buy" lists.