Economic Worries Trigger Sell-Off

Stocks fell sharply on Thursday, as investors worried that an economic downturn may begin to eat into corporate profits.

The Dow Jones industrial average dropped 25.93 to 4,412.23, breaking a four-day winning streak and eroding gains of more than 97 points that had been made since last Thursday.

Declining issues outnumbered advancers by 1,180 to 1,056 on the New York Stock Exchange, with 728 issues left unchanged. Big Board volume totaled 341.82 million shares as of 4 p.m., down from 391.76 million on Wednesday.

Stocks fell in reaction to two economic reports that showed the economy is sluggish. Initial unemployment claims grew a surprising 13,000 in the week ended May 20, well above expectations. And sales of existing homes fell 6.4 percent, despite a drop in home mortgage rates.

The bad economic news sparked a rally in the bond market, and stocks followed bonds higher at the opening bell. But bonds quickly backed off their highs, trading close to unchanged for most of the day and paving the way for a retreat in stocks, traders said.

Some of the stocks that moved substantially or traded heavily Thursday:

NYSE

Louisiana-Pacific fell 4 to 22 1/2.

The company is under grand jury investigation for alleged criminal violations of environmental law and fraud at a Colorado mill, The Wall Street Journal reports.

Borders Group, trading at 15 1/4, up from an original price of 15.

The stock moved higher after an initial public offering of 35.905 million common shares was priced at $14.50 each by Kmart Corp., which said it would take a pretax loss of about $185 million on the offering. Kmart shares were off 1/4 at 12 5/8.

Computer Associates rose 5 7/8 to 71 1/2.

The systems software maker Computer Associates announced it will buy Legent for $47.95 per share. Analysts said the $1.8 billion buyout would enhance Computer Associates’ competitive position in the business of managing corporate computer systems.

NASDAQ

Novell fell 2 to 20 5/8.

The software company said its second-quarter net earnings rose to 26 cents per share from 18 cents a year ago, but analysts noted disappointing growth in the company’s Netware product.

AMEX

Circa Pharmaceuticals rose 2 to 29 3/8.

The Federal Trade Commission granted Watson Pharmaceuticals permission to acquire Circa.