Stocks Fall Ahead of Close; Up for Quarter

Stocks declined as the session end neared as quarter-end rebalancing, and profit-taking, caused the markets to waver despite positive economic news.

The Dow Jones Industrial Average fell more than 40 points after gaining more than 100 earlier. American Express, Caterpillar , Pfizer fell, while Boeing rose.

The S&P 500 and the Nasdaq also slipped. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 23.

Technololgy, industrial, and consumer staples sectors fell, while energy rose.

Despite volatility over the last few sessions, the markets have had a stellar month, with both the Dow and the S&P 500 on track for the best September since 1939; the Nasdaq is having its best September since 1998. Also having a good month: the CRB Index, up 8.23 percent, a record.

For the quarter, all the major indexes are on track for their biggest quarterly gains since the third quarter a year ago.

“We’ve enjoyed such a nice gain in the market over the last few weeks, that I think you have a lot of nervous longs,” said JJ Kinahan, chief derivates strategist at TD Ameritrade. “It’s more than normal profit-taking though, because we’ve had this nice run, and we’re at the high end of the range.”

The market is also experiencing the effects of quarter-end portfolio rebalancing and the quarterly expiration of options and futures contracts, he said.

AIG shares jumped almost 4 percent to lead the S&P 500 after news the insurer worked out a plan with the U.S. government to repay taxpayers in full. The company also said it will sell two Japanese life insurance units to Prudential Financial for $4.8 billion. Prudential shares slumped following the news.

Most financial stocks were higher, including Morgan Stanley, Citigroup and Goldman Sachs . Meanwhile, FBR and Sandler O'Neill cut their third quarter share views on Morgan Stanley while Bernstein cut its price target on the banking giant to $35 from $37.

In the tech sector, Apple fell even after Stifel raised its price target on the iPod maker to $360 from $350. Google was slightly higher after BofA Merrill raised its price target on the search-engine giants to $640 from $630. And Yahoo slipped after BofA lowered its price target to $18 from $20.

Qualcomm rose after Canaccord Genuity raised its price target on the tech giant to $59 from $51.

Caterpillar shares were lower after the heavy-equipment manufacturer said it would raise product prices up to 2 percentfrom next year.

Boeing shares rose after the aircraft manufacturer pushed back its deliveryscheduled for its 747-8 freighter to mid-year 2011 to address manufacturing issues. The delay isn't expected to affect Boeing's financial results, the company said.

Shares of Mattel were slightly higher despite news Federal regulators recalled more than 10 million Fischer-Price products. But brokerage BMO raised its price target on the toymaker to $32 from $29.

Johnson & Johnson's chief executive is testifying before a House committeeon the health-care company's recalls of over-the-counter medicines. Shares of the drugmaker declined.

McCormick soared to an all-time high after the maker of spices and herbs issued a quarterly profit that beat expectations.

Dollar Thrifty shareholders rejected a $1.5 billion offer by Hertz to buy the car-rental company, sending Hertz's shares tumbling. Meanwhile Avis said on Wednesday it would include a $20 million break-up feein its offer for the company if Hertz walks away from the deal.

Meanwhile, BP shares climbed after the oil giant's incoming Chief Executive Bob Dudley said he wanted to restore the company's dividend paymentsnext year.

Oil prices topped $79 a barrel, hitting a fresh seven-week high. Energy stocks were largely higher, with Occidental Petroleum , Valero and Exxon Mobil posting gains.

Meanwhile, gold slipped near $1,307 an ounce, falling from record highs.

In addition, most of the sectors posting losses were substantially higher for the month: technology stocks were up more than 11 percent, while consumer discretionary and industrial stocks were up more than 10 percent.

The S&P 500 Index is back under 1,145 after rising above 1,150 earlier in the session, a level that has been a key resistance point over the last several days.

"That 1,150 level, the January peak, has been trouble," said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.

Detrick noted that the economic data continues to be strong, providing plenty of evidence that a double-dip recession isn't in the offing, but the markets may not move significantly higher until third quarter earnings season gets underway, he said.

In the day's economic news, Labor Department reported applications for jobless claims fell 16,000 last week, more than expected, down to 453,000, in a positive sign for the job market. The less volatile four-week average of jobless claims dropped to the lowest level in five months.

Second-quarter GDP was revised slightly higherfrom previous estimates to 1.7 percent, from 1.6 percent, due to upward revisions to consumer spending and business inventories, the Commerce Department said.

And the Institute for Supply Management-Chicago business barometer rose to 60.4 in September, up from 56.7 in August. A reading above 50 indicates expansion in the regional economy. Economists had forecast a September reading of 55.9.

Meanwhile, Federal Reserve Chairman Ben Bernanke is testifying before a Senate Banking Committee hearingon implementing the recently passed financial regulation act.

In Europe, Ireland's central bank said that bailing out Anglo Irish Bank could cost $46.44 billion and Allied Irish Banksneeded another $4.1 billion by the end of the year. Irish Finance Minister Brian Lenihan said on CNBC some holders of debt in troubled Irish banks face a severe haircut on their holdings, but the announcements should draw a line under the crisis.

Meanwhile, Spain saw its sovereign credit rating downgraded to Aa1 from AAA by Moody's. The rating agency said it did not expect further rating downgrades for Spain.

On Tap For This Week:

THURSDAY: After-the-bell earnings from Accenture
FRIDAY: Personal spending; NY Fed Pres Dudley speaks; Consumer sentiment; ISM manufacturing index; Construction spending; Monthly auto sales; BP's Hayward steps down

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