NEW YORK -- U.S. stocks declined yesterday as a slump in tobacco and airline issues offset optimism that lawmakers would approve the North American Free Trade Agreement.
"Tobacco stocks were hit, and so were the airlines," said Todd Clark, senior block trader at Mabon Securities Corp. "We had a more sober, realistic market today."
The Dow Jones industrial average declined 6.42, to 3,704.35, one day after rising 33.25 points, to a record 3,710.77. Philip Morris Cos. accounted for much of the average's slide.
Philip Morris declined $1.25, to $55.875, after an analyst at Merrill Lynch & Co. raised concern about lower-than-expected earnings and cigarette shipments.
Airline stocks fell after the British government said it warned the U.S. government that it would ban some flights into Heathrow Airport if the United States continues to restrict British Airways' ability to market its services in America. UAL Corp. dropped $4.25, to $140, and AMR Corp. lost $1.875, to $69.875.
"There is some political posturing going on," said Glenn Engel, analyst at Goldman, Sachs & Co. "I doubt it will amount to anything, but the stocks reacted just the same."
The Dow Jones transportation average slumped 27.99, or 1.6 percent, to 1,731.99. Airline stocks also fell on concern about a possible strike by workers at American Airlines.
The Standard & Poor's 500 Index fell 1.93, to 464.81. The Nasdaq Combined Composite Index slumped 9.33, to 762.36, led by a decline in Intel Corp., Novell Inc. and MCI Communications Corp. The American Stock Exchange Market Value Index fell 2.19, to 472.54.
Eleven common stocks were lower on the New York Stock Exchange for every six that advanced. Trading was active, with about 320 million shares changing hands on the Big Board.
Tobacco stocks slumped after Merrill's Allan Kaplan downgraded his investment rating for Philip Morris and RJR Nabisco Holdings Corp. to intermediate-term "below average."
Mr. Kaplan's decision followed reports that Philip Morris might take a restructuring charge in the fourth quarter. One tobacco-industry analyst estimated the charge could reach $1 billion.
RJR Nabisco closed unchanged, at $6.50; American Brands Inc. fell 87.5 cents, to $34.125; and UST Inc. slid 37.5 cents, to $26.75.
The decline in stock prices wiped out much of Tuesday's rally, which was triggered by expectations the House of Representatives would vote in favor of NAFTA.
Analysts said that those expectations held yesterday, but that investors were reluctant to jump into the stock market until the issue was resolved.
The House of Representatives passed the North American Free Trade Agreement last night by a margin of 234-to-200, clearing the way for Senate approval, expected within days.
The exporting power of U.S. companies would have been hurt if NAFTA wasn't passed, Mr. Williams said. "Companies are always restructuring to find new ways to market their products. NAFTA does this for companies for free," he said.
The American depositary receipts of Telefonos de Mexico SA were the most actively traded issue on the U.S. Composite. Telmex closed unchanged at $56.875, after rallying $2.50 Tuesday.
Newbridge Networks Corp., RJR Nabisco, Intel Corp. and FTP Software Inc. were the other most actively traded stocks.
Newbridge Networks slumped $6.625, to $58. The designer and maker of voice and data communications earned C$0.44 a share in the second quarter, up from C$0.14 in the year-earlier quarter. Revenue was lower than expected, and tax rates were higher.