NEW YORK, Feb. 7 (UPI) -- Stock prices on the New York Stock Exchange and the Nasdaq Stock Market ended lower in cautious trading Friday as worries over a war with Iraq took the shine off a favorable report on the economy.
Analysts said stocks lost all their early-day gains as investors indicated that geopolitical worries cannot be snuffed out for long by positive economic news.
The blue-chip Dow Jones industrial average, which lost 55.88 points Thursday, fell 65.07 points to close at 7,864.23. The tech-heavy Nasdaq composite index, which added 0.23 points in the previous session, dropped 19.26 points to close at 1,282.47.
The broader New York Stock Exchange composite index fell 43.64 points to close at 4,713.66, the Standard & Poor's 500 index dropped 8.46 points to close at 829.69, the American Stock Exchange composite index ended down 4.86 points to close at 811.83, and the Wilshire 5000 Index fell 84.77, to close at 7,873.41.
Volume was 1.38 billion on the Big Board and 1.17 billion on Nasdaq.
Analysts said stocks came under fresh selling pressure on reports that the United States government was going to raise the alert status for the nation to high, from elevated, regarding the prospects of a terrorist attack.
Stocks had risen early as investors reacted to news from the Labor Department that the nation's unemployment rate fell to a three-month low in January as employers added more workers to their payrolls than at any time in the last two years.
Traders said they had expressed concerns that something like this might occur. The very-much-improved employment report received before the open of the market was not enough to overcome the specter of war.
Experts said investors are refusing to make big bets with the looming threat of a U.S. military strike on Iraq.
Bryan Piskorowski, first vice president at Prudential Securities, said, "The drumbeat of war is picking up pace. Last (Thursday) night, President Bush said that the game is over and that he'll welcome a new U.N. Security Council resolution to demand disarmament, though he made it clear that he does not feel one is required.
"But the timing of action remains in the weeks, not months, category with no official deadline being put in place," Piskorowski said.
The jobless report sparked a brief, opening rally as investors reacted to news that non-farm payrolls rose by a larger-than-expected 143,000 in January, partly reversing a decline of 156,000 in December.
The jobs growth marked the biggest gain since November 2000, and the first since October. The unemployment rate fell to 5.7 percent from 6 percent.
But the Labor Department said the job growth mostly reflected seasonal shifts in the retail-trade industry, which added 101,000 jobs.
Excluding the 101,000 positions that were added in the retail-trade sector, the overall economy only added 42,000 non-farm jobs in January, the report showed.
Economists were expecting the unemployment rate in January to remain at 6 percent and non-farm payrolls were expected to grow by 68,000 during the month.
Analysts said the unemployment rate and the jobs growth suggested the labor market may be stabilizing.
Amid sluggish economic growth and worries about the consequences of a U.S. war with Iraq, employers have cut more than 2 million jobs over the last two years.
Forecasters widely expect economic growth to remain sluggish this year, and they had been expecting the unemployment rate to rise as high as 6.5 percent by the middle of 2003.
White House economic adviser Glenn Hubbard said the labor market still has "a way to go" to recover and warned of major downside risks to the economy.
Analysts have said the nation's economy needs to create 100,000 to 150,000 new jobs a month to reduce joblessness. In the early stages of recovery, though, the economy needs to create more than 250,000 new jobs per month.
Hubbard said the jobless report showing a surge in new employment in January did not change the "fundamental message the president has been saying, which is we still have a way to go in encouraging a vigorous employment recovery."
Hubbard said: "A typical post-war employment recovery would be more vigorous than what we're seeing now. We think there is a recovery under way, but there are very prominent downside risks to recovery," citing slow growth in business investment.
Hubbard also said deflation warranted monitoring but was not a "clear and present danger" to the nation's economy.
Meanwhile, the Economic Cycle Research Institute's Future Inflation Gauge, which is designed to anticipate cyclical swings in the rate of inflation, showed inflationary pressures grew in January as the nation's economic recovery limped ahead at a modest pace.
The research group said its index on inflation rose to 119.7 in January from 117.2 in December.
"Underlying inflation pressures are still on the rise as the economic recovery continues," ECRI said.
The index's annualized growth rate, which smoothes out monthly fluctuations, rose to 23.4 percent in January from 22.2 percent in December.
Meanwhile, U.S. Treasury prices gained. The 10-year bond added 4/32 to 100 18/32. Its yield, which moves in the opposite direction of its price, fell to 3.93 percent from 3.94 percent late Thursday.
In Europe, stocks ended fractionally higher in London, but lost griund in Frankfurt and Paris. The London International Stock Exchange's blue-chip FTSE-100 index gained 5.20 points to 3,602.2. The German DAX index fell 60.94 points, or 2.3 percent, to 2,588.06, and the French CAC-40 index lost 39.52 points, or 1.4 percent, to 2,706.66.
Analysts said British stocks turned higher late in the session after news of an unexpected drop in the U.S. unemployment rate lifted some of the gloom that has dominated recent sessions. French and German stocks were pressured by the decline on Wall Street.
In Asia, prices eased on the Tokyo Stock Exchange in light trading as investors sold blue-chips in the absence of fresh incentives. The blue-chip Nikkei Stock Average, which lost 65.66 points Thursday, slipped an additional 36.03 points, 0.4 percent, to 8,448.16.
Analysts said stocks eased on selling by companies unwinding mutually held shares and returning pension assets to the government.
Prices ended slightly higher on the Hong Kong Stock Exchange, lifted by some bouts of bargain hunting. The blue-chip Hang Seng Index, which lost 54.32 points in the previous session, added 24.80 points, or 0.3 percent, to 9,150.95.
Prices slipped in moderate trading on the South Korean Stock Exchange. The Korean Composite Stock Price Index, or Kospi, which lost 11.18 points during the previous session, lost 12.02 points, or 2 percent, to 577.48.
Prices also ended slightly lower on the Singapore Stock Exchange, pressured by concerns about a possible U.S.-Iraq conflict. The Straits Times Index, which slipped 4.26 points during the previous session, lost an additional 2.22 points, or 0.2 percent, to 1,285.41.
Stocks also lost ground on the Taiwan Stock Exchange, pressured by growing jitters over a possible war against Iraq and concerns about the technology sector's weak outlook. The key Weighted Index, which sank 181.58 points during its previous session, lost 98.21 points, or 2 percent, to 4,735.37.
Prices ended higher on the Australian Stock Exchange, lifted by some bargain hunting. The blue-chip All Ordinaries Index, which lost 30.10 points during the previous session, rose 17.90 points, or 0.6 percent, to 2,886.10.
