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US: Wall Street steps back from early 2009 rally

06 Jan 2009 9:08 AM

NEW YORK, Jan 5 AFP - US stocks fell on Monday as investors returning from year-end holidays cashed in profits from last week's powerful rally and braced for upcoming corporate earnings reports.

The Dow Jones Industrial Average shed 81.80 points (0.91 per cent) to close at 8,952.89 and the technology-dominated Nasdaq fell 4.18 points (0.26 per cent) to 1,628.03.

The broad-market Standard & Poor's 500 index retreated 4.35 points (0.47 per cent) to 927.45.

With little economic news on tap, the market pulled back from Friday's strong rally to open 2009.

"Sentiment may be taking a blow as traders fret over weak corporate profits ahead of fourth-quarter earnings season, which is set to kick off later this month," analysts at Charles Schwab & Co said.

US stocks on Friday staged a huge rally in the first trading session of 2009 as investors turned the page on a horrific 2008, the worst year on Wall Street since the Great Depression.

The blue-chip Dow surged 2.94 per cent, ending the holiday-shortened week more than six per cent higher than the prior week.

Investors had their eyes on Monday on Washington, where president-elect Barack Obama was meeting with congressional leaders to discuss plans to revive the moribund economy, mired in recession for a year and crippled by the global financial crisis.

According to some reports, the package could exceed $US850 billion ($A1.18 trillion) and that appeared to be part of the reason for a generally positive backdrop to open 2009.

Dick Green at Briefing.com cited "scattered longer-term optimism" in the market.

"This is due mainly to the hope that a massive government stimulus plan will stabilise the economy and might even lead to a significant recovery in the second half of the year," he said.

On the slim economic calendar, the Commerce Department reported November construction spending fell to an annual 0.6 per cent rate, half the analysts' consensus forecast of a 1.2 per cent decline.

The market appeared to shake off news of weak US sales from the major carmakers in December, due to the weak economy, declining consumer confidence and a credit crunch.

General Motors sales fell 31 per cent in December, Ford's fell 32 per cent and Chrysler's 53 per cent.

But shares in GM gained 1.64 per cent to $US3.71, while Ford's stock leapt 4.88 per cent to $US2.58.

Andrea Kramer at Schaeffer's Investment Research said the sales reports "weren't as bad as expected" but that "investors remained concerned regarding the latest surge in energy prices" as well as the upcoming monthly unemployment report.

New York's main contract, light sweet crude for February, shot up $US2.47 to close at $US48.81 a barrel.

Among other stocks in focus, Apple was up 4.22 per cent to $US94.58 after chief executive Steve Jobs, whose health has been the subject of rumours, said he was being treated for a "hormone imbalance" but would remain head of the company.

The bond market weakened. The yield on the 10-year Treasury rose to 2.488 per cent from 2.416 per cent on Friday while that on the 30-year bond climbed to 3.040 per cent from 2.815 per cent.

Bond yields and prices move in opposite directions.