Stocks Close Lower as Oracle Spurs Concerns

Stocks closed lower Thursday as concern about the implications of Oracle's weak sales outlook rippled through the market.

The Dow Jones Industrial Average and S&P 500 had initially ticked higher as traders breathed a sigh of relief that GDP and jobless-claim reports weren't as bad as expected, but the pop quickly fizzled. The Dow shed 1 percent, while the S&P lost 1.2 percent. The tech-heavy Nasdaq finished down nearly 2 percent.

Oracle said its quarterly profit increased 25 percent but reported disappointing software sales. The company said its customers have become increasingly cautious, raising concerns about business spending and poking a hole in the theory that the software sector would be more resistant to economic turmoil.

Fellow software maker Microsoft was one of the biggest decliners on the Dow, along with chip maker Intel .

The S&P information-technology index dropped 2.3 percent making it the biggest decliner among 10 key S&P sector indexes.

Oracle's report "suggests that there's still a lot of difficulty out there," said Bruce McCain, head of investment strategy at Key Private Bank in Cleveland. A lot of tech companies like Oracle have strong overseas exposure and there are increasing indications that there is more weakness overseas than is currently factored into the U.S. market, McCain said.

You have to wonder, "Is this something specific to Oracle or is this a broader indication of a deterioration overseas?" McCain asked.

In fact, McCain's team at Key Private Bank is so concerned about worsening conditions outside the U.S. that they advise -- and have begun themselves -- paring back overseas holdings.

Google shares skidded after Lehman Brothers cut its price target on the stock to $580 from $644 and slashed its earnings forecast to $4.46 a share from $4.67 a share.

Energy stocks retreated after an earlier rally. Crude oil closed above $107 a barrel.

Financial stocks declined, with the S&P financial index off 1.7 percent, after another bleak prognosis for the sector.

A day after downgrading the four largest U.S. banks, Oppenheimer analyst Meredith Whitney warned late Wednesday that Merrill Lynch and UBS could suffer write-downs of $6 billion and $11 billion, respectively, as credit problems worsen.

"Many expected the fourth quarter to be the 'kitchen sink' for the industry," Whitney wrote in a separate report dated Thursday. "First-quarter results (will) be a rude awakening."

Indeed, Sanford Bernstein now expects Merrill to post a loss in the first quarter instead of a profit as it had initially projected, citing write-downs.

Whitney's move to cut estimates for Citigroup , Bank of America , JPMorgan Chase and Wachovia sent the sector into a tailspin on Wednesday.

Whitney's calls have been right in the past. In October, she correctly predicted that Citigroup would cut its dividend and raise $30 billion of capital. 

Lehman Brothers was once again the gazelle of the financial sector, with shares falling more than 10 percent amid pressure from shorts and rumors that there will be a run on the bank similar to Bear Stearns . A Lehman spokeswoman called the rumors "totally unfounded."

In economic news, the Commerce Department held its reading on U.S. economic growth at 0.6 percent in its third and final reading on fourth-quarter GDP. The consumer spending component of the GDP report was revised upward to 2.3 percent growth, while core PCE inflation slipped to 2.5 percent. Corporate profits declined 3.3 percent, though that measure doesn't include write-downs. A separate report showed jobless claims fell by 9,000 last week.

Among other news of interest to Wall Street is today's Fed's Term Lending Facility Auction that will allow brokerages to exchange mortgage assets for government securities.

And, the Chicago Mercantile Exchange raised corn and soybean margins by 50 percent and 30 percent, respectively, in an attempt to curb speculative interest and help traders from losing their shirts amid wild swings in the grain markets.

Stocks were mostly lower throughout day, but there were pockets of strength in the homebuilding and pharmaceutical sectors.

The U.S.'s number two homebuilder Lennar