Original Source

Stocks Sink on Accounting Woes
Tue Feb 19, 4:47 PM ET

By Haitham Haddadin

NEW YORK (Reuters) - Stocks sank on Tuesday, with the tech-laden Nasdaq market scraping lows unseen since early November amid unrelenting fears on Wall Street about shaky bookkeeping and bad debts.

International Business Machines Corp. slid to a 4-month low after a Wall Street investment firm said worries about the company's complex accounting practices would weigh on the shares. Telecommunications shares tumbled on jitters a credit crunch could drag more firms into bankruptcy and investors also fretted about the health of financial firms amid the accounting turmoil.

"All these accounting problems are part of the decline -- they represent a can of worms that hasn't been opened yet," said Frank Gretz, analyst for Shields & Co. "IBM is one of our catalysts today and telecom stocks are a real concern -- you can worry about some of these companies having a credit crunch."

The blue-chip Dow Jones industrial average <.DJI> lost 157.90 points, or 1.59 percent, to 9,745.14 and the broader Standard & Poor's 500 Index <.SPX> fell 20.84 points, or 1.89 percent, to 1,083.34 for the worst decline in two weeks.

The technology-laced Nasdaq Composite Index <.IXIC> sank 54.59 points, or 3.02 percent, to 1,750.61 after scraping a new session low at 1,745.05 -- the lowest level the index touched since early November and down 10 percent year to date.

Nasdaq breached key support levels -- where buyers usually emerge in force -- between 1,772 and 1,750 points, but the gauge should find a solid footing at about 1,743. That's because the index then would have given back half the gains from the Sept. 21 low to early January rally. But a serious breach of the 1,743 area opens the way to revisiting October lows, technical analysts warned.

Wall Street paid little attention to upbeat economic news. U.S. housing starts jumped 6.3 percent in January to their highest pace in almost two years, the government said, as housing continued its strong run despite the sluggish economy.

"Positive news on the economic front isn't sinking in as investors are preoccupied with accounting fears and credit problems," said Rick Jandrain, managing director for equities for Banc One Investment Advisors, which oversees $135 billion. "There was a heck of a lot of debt amassed in the telecommunications area."

Leading losses on the Nasdaq, Nextel Communications Inc. fell nearly 27 percent, or $1.31 to $3.55. The shares were slammed after the nation's No. 5 wireless operator said its international unit, NII Holdings Inc., will have to take a pretax noncash restructuring charge of $1 billion to $2 billion in 2001.

AES Corp. plunged more than 32 percent, or $2.25 to $4.75, in active Big Board trade. The independent power producer said it would shed assets in a restructuring aimed at raising up to $1.5 billion in cash to soothe investor concerns about its ability to service debt.

Adding to the investor jitters about the quality of corporate earnings, PNC Financial Services Group Inc. said it would cut 2001 results from discontinued operations by $35 million, due to a bookkeeping mistake. The announcement came just weeks after the bank said it would restate 2001 results downward. Shares fell $1.60 to $55.35.

"Normally people would cheer up and say 'It's great to have more disclosure' but the fact that they feel that they (companies) need to disclose more, that they need to explain their earnings, worries people a little bit," said Brian Pears, head of equity trading at Victory Capital Management.

Financial shares, also hurt by the PNC story, slid on worries their profits may be at risk from piles of bad debt. Citigroup lost $1.91 to $42.22 and J.P. Morgan Chase & Co. fell $1.02 to $29.03.

IBM slid $3.35 to $99.54, scraping the lowest intraday level since Oct. 19 after Prudential Securities analyst Kimberly Alexy said long-standing concerns about IBM's earnings "engineering" would hurt the stock over the next year. The analyst, who rates the stock a "hold," cut her target price to $100 from $111.

IBM already tumbled on Friday after The New York Times reported the computer maker hadn't disclosed a $300 million gain on the sale of an optical unit. An IBM spokeswoman said the company had adequately disclosed the sale of the unit.

Among the latest triggers for balance-sheet jitters was a story in Monday's edition of the New York Post, which raised questions about deal-making structures at Cisco Systems Inc.

"Here's just one more name; let's just add another log to the fire," said Michael Farr, president of Farr, Miller & Washington. "One is starting to get the impression that all (companies) are doing it and I think with that comes the worry: 'Is this really where I want to have my money?"'

Shares of Cisco, the Web gear maker, fell 1.6 percent, or 28 cents at $16.81, and were among the most active on the Nasdaq market.

Investors are also worried that telecommunication companies' credit-worthiness could lead to capital squeezes. Qwest Communications International Inc. recently chose to draw down bank credit lines because it couldn't sell short-term debt. Qwest lost 29 cents to $7.27, or 3.8 percent.