Service sector misses expectations; stocks fall

NEW YORK - A disappointing report on services industries halted a two-day climb in the stock market.

The Dow Jones industrial average fell 26 points yesterday after advancing nearly 230 points in the first two days of the week. The broader Standard & Poor's 500 index posted a steeper drop, while the Nasdaq composite index was little changed.

The report on services businesses, which make up the biggest slice of the U.S. economy, reminded investors that a recovery will be slow.

The Institute for Supply Management said its index of service activity rose to 50.5 in January from a revised 49.8 in December. The January reading was below the level of 51 that analysts polled by Thomson Reuters had been expecting. Any number above 50 signals growth.

The weaker activity in the service sector chilled enthusiasm about a report that private employers cut fewer jobs than expected last month. The news on jobs from ADP, a payroll company, comes ahead of the government's January employment report tomorrow, which is expected to show that employers added 5,000 jobs last month, but that unemployment edged up to 10.1 percent from 10 percent.

ADP said employers cut 22,000 nonfarm, private jobs last month. It was the best showing since employment started to weaken in February 2008.

A reduced forecast from Pfizer Inc. dragged health-care stocks lower. Meanwhile, bank stocks fell after PNC Financial Services Group said it would repay $7.6 billion in bailout funds to the U.S. government. Traders grew concerned that other regional banks would face pressure to follow suit.

The market could get a boost today from Cisco Systems Inc. The maker of computer-networking equipment issued earnings and forecasts after the closing bell yesterday that came in well ahead of expectations. Chief executive officer John Chambers said strengthening in the company's business was "a clear indication that we are entering the second phase of the economic recovery."

Events in Washington continued to ripple through the stock market. Transportation Secretary Ray LaHood said he misspoke when he said early yesterday that owners of Toyota cars and trucks should stop driving them because of problems with accelerator pedals in some models. Toyota shares fell sharply, but pulled off their lows after LaHood clarified his remarks.

The zigzag in Toyota's stock was the latest reminder that events in Washington are high on investors' list of concerns. Worries that tougher laws, including President Obama's proposal to restrict banks' trading activity, would hurt profits helped drive the market lower last month.

The Dow fell 26.30, or 0.26 percent, to 10,270.55. The S&P 500 index fell 6.04, or 0.55 percent, to 1,097.28, while the Nasdaq rose 0.85, or 0.04 percent, to 2,190.91.

Pfizer posted increased fourth-quarter earnings, but the results were weaker than analysts had forecast. The stock fell 44 cents, or 2.31 percent, to $18.62.

PNC shares fell 94 cents, or 1.72 percent, to $53.71 after saying it would repay bailout money.

Other regional banks posted steeper drops. Fifth Third Bancorp fell 48 cents, or 3.85 percent, to $12.00, while Huntington Bancshares Inc. slid 22 cents, or 4.46 percent, to $4.71.

Toyota Motor Corp. shares fell $4.69, or 6.00 percent, to $73.49.