NEW YORK, Feb 11: US stocks slumped in late-morning trade Friday after a disappointing profit outlook from pharmaceutical giant Pfizer and concerns that the bond market may be pointing to an economic slowdown.

The Dow Jones Industrial Average dropped 49.30 points (0.45 per cent) to 10,834.05 and the Nasdaq composite shed 14.95 points (0.66 per cent) to 2,240.92 at 1635 GMT.

The broad-market Standard and Poor’s 500 index was down 6.36 points (0.50 Per cent) at 1,257.42.

The market’s a little listless, said Jay Suskind, director of trading at Ryan Beck and Co.

People are watching the bond market, with the 30-year rallying and the fact we’re seeing some inversion.

Inversion occurs when longer-term Treasury yields fall below short-term yields. Banks typically fund long-term loans with short-term borrowings. With yields inverted, it makes it difficult for banks to make money and thus makes them less inclined to lend.

Investors fear such a scenario could lead to a slowdown in economic growth.

At the same time, Suskind said investors are still unclear on when the Federal Reserve will end its cycle of interest-rate increases. On Thursday, one Fed governor hinted that inflation remains a worry for the central bank and that further rate “tweaking” may be necessary.

There was only muted reaction to news from the Commerce Department that the US trade deficit grew in December by 1.5 per cent to 65.7 billion dollars, wider than expected by economists. The gap grew to a record 725.8 billion dollars for 2005.

On Thursday, stocks ended mixed after a round of upbeat profit forecasts from Aetna, Best Buy and others was tempered by a Fed official’s remarks hinting at higher interest rates.

Market sentiment has been wary in recent sessions and gains have been hard to come by. The market appeared headed for a second straight rally Thursday until a late fade.

“While the market has rallied the past two sessions, volatility, as expected, remains the watch word,” said Al Goldman at AG Edwards.

“This reflects the thin confidence in the stock market due to the many geopolitical fears and uncertainties in our face. While this condition is a governor on short-term bullishness, it keeps the market healthy and far from ‘irrational exuberance.’”

Among stocks in focus, Pfizer dropped 76 cents to 25.58 after the world’s biggest pharmaceutical firm said it expects 2006 adjusted earnings shy of analysts’ estimates.

Visteon Corp. climbed 28 cents to 5.12 after the auto parts maker posted a quarterly profit of 1.34 billion dollars after recording a gain on the sale of plants. It also increased its 2006 earnings outlook.

Oracle added four cents to 12.73 after the company said late Thursday it will lay off 2,000 employees and offered a profit forecast for this quarter and the next that was in line with estimates.

Bonds rallied amid an inversion of the yield curve following a successful auction of 30-year bonds for the first time since 2001.

The yield on the 10-year bond fell to 4.510 per cent from 4.541 per cent Thursday, and that on the 30-year bond tumbled to 4.473 per cent from 4.643 per cent.

The unusual scenario puts the 30-year bond at a lower yield than that of the 10-year bond and that of the two-year bond, which was yielding 4.639 per cent.—AFP