Last updated: October 4, 2010 10:08 pm

Microsoft downgrade leads Wall St tech shares lower

US stocks fell as a rating downgrade for Microsoft weighed on the technology sector and weakening metals prices pushed materials stocks lower.

The S&P 500 closed down 0.8 per cent at 1,137.03 on Monday, the Dow Jones Industrial Average had lost 0.7 per cent to close at 10,751.27 and the Nasdaq Composite was lower by 1.1 per cent to close at 2,344.52.

All 10 main sectors of the S&P 500 fell, with four lower by more than 1 per cent. Investors were cautious before a week that sees the first major earnings report, out on Thursday from miner Alcoa, and the key non-farm payrolls report, set to be released on Friday.

Michael Shea, managing partner in equity sales and trading at Direct Access Partners, said that the stock market had recently been moving in the opposite direction to the dollar.

“[A falling dollar means] US goods are cheaper overseas so there’s an opportunity for business to pick up and maybe even hire a few more people,” he said.

But the dollar, which fell sharply last week, rose on Monday against a basket of other currencies.

Investors were briefly cheered by a report on factory orders that showed they fell 0.5 per cent. But factory orders excluding the volatile transportation sector rose 0.9 per cent.

A separate release showed pending home sales rose more than expected to a four-month high in August, the latest set of data to suggest that the housing market could be regaining some stability after the withdrawal of the homebuyer tax credit earlier in the year.

The materials sector led the fallers, down 1.4 per cent, as metals prices, which have risen recently on hopes of strong demand in China, fell slightly.

US Steel declined 2.8 per cent to $42.42, AK Steel lost 2.8 per cent to $13.58 and Cliffs Natural Resources , an iron ore producer, was down by 3.7 per cent to $64.12.

The technology sector fell 1.1 per cent with Microsoft dropped 1.9 per cent to $23.91 after Goldman Sachs downgraded the company to “neutral” and cut its price target for the maker of Windows and Office software.

Analysts were concerned that it is taking longer for customers to replace old PCs and that many are turning instead to tablet computers and smartphones, where Windows does not yet have a presence. The technology company raised its dividend in September but Goldman analysts said that it should have increased it more in order to appeal to a larger investor base.

Elsewhere in technology, Intel was lower by 2.3 per cent to $18.87 and Apple dropped 1.4 per cent to $278.64.

In financials, JPMorgan Chase managed to withstand the sector’s slide, edging up 0.5 per cent to $38.95 after having risen 1.6 per cent earlier in the session.

It was reported that the bank could boost its dividend next year and that the share price may rise as much as 45 per cent during the next two years, because of a strong senior management team and acquisitions made during the financial crisis.

AIG also rose, climbing 1.1 per cent to $39.28 in spite of lowering its valuation of its Asian business in order to secure a $1bn pledge from the Kuwait Investment Authority and other important investors, according to people familiar with the matter.

However the S&P 500 financials index dropped 0.7 per cent. American Express sunk 6.5 per cent to $39.05 after an antitrust lawsuit was filed against the company. Rivals Visa and MasterCard settled with regulators over an investigation about restrictions on merchants. Shares in Visa edged lower by 0.1 per cent to $73.24 and MasterCard fell 1 per cent to $222.64.

In deals news, Sanofi-Aventis launched a hostile bid for Genzyme Corp at $69 per share, the same offer it first made at the end of July.

US-listed shares in the French drugs company fell 0.8 per cent to $32.87 while Genzyme shares added 0.2 per cent to $71.01.

Sara Lee surged 7.2 per cent to $14.40 after it was reported that the consumer-goods company had rejected a $12bn buy-out offer from KKR, the private equity group. Shares in KKR fell 1 per cent to $10.73.

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