Surprising economic reports thwart rally

NEW YORK - Investors broke the stock market's four-day rally yesterday and sold after data on the services industry and factory orders came in below forecasts. Factory orders actually rose in April, but the report disappointed investors who anticipated a larger increase.

The Dow Jones industrial average fell almost 66 points, or 0.75 percent, while the Standard & Poor's 500 index fell 1.37 percent. The Nasdaq composite index, which has been outperforming the other indicators this year, fell just 0.59 percent.

In the last hour of trading, some traders bought into the stock market to take advantage of reduced prices, said Ryan Larson, senior equity trader at Voyageur Asset Management L.L.C. It's the tactic known as bargain hunting, or "buying the dips," and the move signaled that many market participants still believe the rally has legs.

The Dow fell 65.63 to close at 8,675.24. The Standard & Poor's 500 index fell 12.98 to close at 931.76. The Nasdaq composite index fell 10.88 to close at 1,825.92.

Some of the biggest declines were in energy, industrial, and material stocks - all areas that have benefited in recent days from gains in oil and commodity prices.

Oil prices pulled back sharply yesterday after a weeklong rally as the government reported a big jump in crude storage levels, signaling continued weak demand.

As crude shed $2.43 to finish at $66.12 a barrel on the New York Mercantile Exchange, Valero Energy Corp. sank $3.98, or 17.78 percent, to $18.40, and Sunoco Inc., of Philadelphia, dropped $2.27, or 7.49 percent, to $28.03.

Investors in both stocks and energy were displeased with the Commerce Department report showing a smaller-than-expected rise in factory orders. Though it was the second gain in the last three months, orders rose just 0.7 percent in April when analysts had called for a 0.9 percent increase.

Also, the Institute for Supply Management, a trade group of purchasing executives, said the services sector shrank in May at the slowest pace since October. The barometer was below economists' estimates and marked the eighth straight monthly decline.

The Russell 2000 index of smaller companies fell 3.92, or 0.74 percent, to 522.71.

Overseas, Japan's Nikkei stock average added 0.4 percent, Britain's FTSE 100 fell 2.1 percent, Germany's DAX index fell 1.7 percent, and France's CAC-40 fell 2.0 percent.