1 August 2003, 21:30  US stocks drop as job, factory data disappoint

NEW YORK, Aug 1 - Stocks sagged in midday trading on Friday after a lackluster U.S. employment report dashed hopes for hard proof that the economic recovery so many investors had bet on earlier this year is underway. The U.S. unemployment rate fell for the first time in a year in July, but companies slashed workers from their payrolls for a sixth straight month, the government reported. The Institute for Supply Management's closely watched survey of the U.S. manufacturing sector kept the mood subdued on Wall Street. The July reading, while in line with analysts' estimates, disappointed investors hoping the survey would show a stronger pickup in the factory sector, market experts said. "The market is stuck, and it's going to stay stuck until we get a definitive and clear direction as to whether this economic recovery is taking hold or not," said Jack Francis, co-head of domestic equity trading at UBS Investment Bank. The Dow Jones industrial average fell 51.61 points, or 0.56 percent, to 9,182.19, while the broader Standard & Poor's 500 Index dropped 7.28 points, or 0.74 percent, at 983.03. The technology-laced Nasdaq Composite Index <.IXIC> was down 12.27 points, or 0.71 percent, at 1,722.75. Walt Disney Co., which posted a 10 percent rise in profits as soaring movie and television networks earnings more than offset weakness in the travel market, helped underpin the market. Its shares rose 58 cents, or 3 percent, to $22.50. But health-care company Johnson & Johnson took a hit after Merrill Lynch cut its rating, citing a poor launch of a product to prevent arteries from reclogging. Johnson & Johnson fell $1.40, or 3 percent, to $50.39. ChevronTexaco Corp., the No. 2 U.S. oil company, fell 89 cents to $71.22 after it said its quarterly profit quadrupled as refining and marketing margins improved and gas and oil prices rose. In economic news, U.S. manufacturing snapped a four-month slump in July and expanded, with factories revving up output on the back of increasing orders. The Institute for Supply Management said on Friday its manufacturing index pushed up to 51.8 in July, matching economists' projections and gaining from 49.8 in June. A reading above 50 signals growth. Earlier, the government reported employers chopped 44,000 workers from their payrolls in July, a reading that contrasted with the expectations of private economists that payrolls would grow by 18,000. At the same time, the U.S. unemployment rate fell in July for the first time in more than a year, but the drop to 6.2 percent from 6.4 percent was caused by a reduction in the labor force and not by a surge in hiring, the Labor Department said.

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