Thu Jul 8
By Elizabeth Lazarowitz

NEW YORK (Reuters) - U.S. stocks fell to their lowest levels in about six weeks on Thursday as disappointing outlooks from Internet company Yahoo Inc. (Nasdaq:YHOO - news) and software maker Siebel Systems Inc. (Nasdaq:SEBL - news) spurred a sell-off in the technology sector.

In a sign that consumer spending may be weakening, many retailers reported disappointing June sales, which fanned Wall Street's fears about the economy and hit shares of retailers like Wal-Mart Stores Inc.(NYSE:WMT - news) and Target Corp. (NYSE:TGT - news)

Stephen Massocca, president of investment bank Pacific Growth Equities, said investors had begun to take for granted the strong profit growth in recent quarters.

"It caught Wall Street by great surprise that the economic data has softened and that many of these companies have had profit difficulties," Massocca said. "Wall Street doesn't like surprises."

The Dow Jones industrial average (^DJI - news) dropped 68.73 points, or 0.67 percent, to 10,171.56, its lowest close since May 26. The Standard & Poor's 500 Index (^SPX - news) dropped 9.23 points, or 0.83 percent, to 1,109.10, and the technology-laced Nasdaq Composite Index (^IXIC - news) dropped 30.76 points, or 1.56 percent, to 1,935.32, both ending at their lowest levels since May 24.

Rising oil prices, which jumped to more than $40 a barrel for the first time in more than a month, did little to soothe investors' worries that persistently high energy prices will crimp corporate profits.

Underpinning the market was strength in drug stocks like Johnson & Johnson (NYSE:JNJ - news) and Pfizer Inc. (NYSE:PFE - news), as investors fed money into companies viewed as less risky in an uncertain economic environment.

"Clearly, we're seeing a little bit of rotation away from the Nasdaq area and into the safer areas." said Evan Olsen, head of equity trading at Stephens Inc.

Trading was active, with about 1.4 billion shares traded on the New York Stock Exchange (news - web sites) and 1.8 billion shares traded on Nasdaq.

Technology stocks have been under pressure as a spate of profit warnings from software companies, including Siebel, prompted investors to question whether the stocks' prices were justified.

Siebel on Wednesday warned its second-quarter revenue would come in below expectations as customers delayed buying at the end of the quarter. Siebel dropped $1.23, or 13 percent, to $7.98.

BMC Software Inc. (NYSE:BMC - news), a network management software company, also lowered its first-quarter profit view, citing delays in customer purchases among its larger accounts. It fell $2.51, or 15 percent, to $14.16.

Yahoo late on Wednesday posted a second-quarter profit that more than doubled but gave a sales outlook that disappointed analysts. Shares of Yahoo fell $2.52, or 8 percent, to $30.08.

Major retail stores reported June sales below forecasts. No. 1 retailer Wal-Mart generated its smallest monthly sales gain in more than a year as cool weather hurt demand for summer items like air conditioners and pool toys. Wal-Mart slipped 14 cents to $52.18.

The Standard & Poor's retailing index (^GSPMS - news) fell 2 percent.

U.S. home builders Beazer Homes USA Inc. (NYSE:BZH - news) and M/I Homes Inc.(NYSE:MHO - news) took a hit after they both reported surprisingly low new orders, fueling fears higher mortgage rates are hurting the housing market. Beazer fell $6.10, or 6 percent, to $91.45, and M/I fell $2.79, or 7 percent, to $37.37.

Pharmaceutical stocks got a boost as promising new drug launches and fading fears about drug reimportation lured investors back to the sector, analysts said.

Johnson & Johnson rose 23 cents to $54.76, while Pfizer gained 22 cents to $33.94. The American Stock Exchange's Pharmaceutical Index (^DRG - news) rose 0.2 percent.

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