www.arizonarepublic.com David Karp/Associated Press Wire services Jan. 28, 2003

Thomas Scavone grimaces as prices declined Monday at the New York Stock Exchange for the seventh time in eight sessions.

It may be a month or two before the first shots are fired in Iraq, but for all intents and purposes a war has already begun on financial markets.

On Wall Street, stock-price declines over the past two weeks have wiped out the gains built up earlier in the month on expectations of an economic rebound later in the year. On Monday, the Dow Jones industrial average dropped below the 8,000 mark, the blue chip index's first close under that bench mark since the middle of October.

A steady stream of downbeat corporate earnings reports and forecasts has added to the sell-off, but most analysts blame jitters about war for the market's downbeat mood.

War jitters have spread overseas as well, with the dollar dropping to new lows against the euro. The greenback is down about 8 percent to the European currency over the past two months. Shaken by what they see as President Bush's willingness to have the United States bear the full political and economic cost of a war to oust Saddam Hussein, some European investors have concluded that the dollar and dollar-denominated stocks and bonds may not be the havens in a time of geopolitical crisis that they are usually thought to be.

The dollar's fall mirrors the steady increase in the price of crude oil. The shut down of supply from strike-ridden Venezuela and fears that an Iraq war could disrupt shipments from Iraq and other Middle Eastern countries have combined to drive up the price of crude to more than $32 per barrel. Higher energy prices are another reason some forecasters think economic growth will be sluggish in the coming months and hurt consumer and business confidence, which will translate to less spending for goods, services and factory expansion.

Some investors fear that even a quick end to the Iraq crisis won't put the market's broader worries to rest. Concerns are building among investors that history's normal pattern, in which war typically is good for stocks, might not apply this time.

The worry is that even if the United States defeats Iraq quickly, or somehow prevails without war, U.S. investors will continue to face a host of world problems that could weigh on stocks for some time to come. In addition to continuing economic and corporate troubles here, investors worry about North Korea's nuclear threat, which some consider an even bigger problem than Iraq. Others think that continuing instability in the Middle East could keep oil prices high.

Also, America's war against terrorism won't be over after an Iraq war, meaning that the risk of further attacks will continue to hang over the stock market.

"Even if you beat Saddam, do you beat terrorism?" asks Henry Herrmann, chief investment officer at mutual fund group Waddell & Reed in Overland Park, Kan. "Terrorism is a weight on the market."

Plenty of investors are still hoping stocks return to the historical pattern, in which they weaken just before a war, then rebound strongly soon after the gunfire begins. That is what happened during World War II, the Korean War and the Gulf War.

It seemed to be happening in fall 2001, when stocks fell after the Sept. 11 attacks, but then rose strongly once the U.S. began its war on Afghanistan's Taliban.

But the war in Afghanistan didn't produce the same result. Instead of sparking a continuing bull market, that fighting led to more investor disappointment. All the stock gains from that war have unraveled, not just because of Iraq, but also because of Enron Corp.'s meltdown, anemic corporate earnings and Wall Street scandals.

Contributing to the declines is a worry that victory in Afghanistan and a potential victory in Iraq don't represent an end to the conflict. Terrorism not only remains a concern but could grow as a result of the fallout from any U.S. move against Iraq.

Not all wars are good for stocks, says Tim Hayes, global stock strategist at market research firm Ned Davis Research in Venice, Fla., who has made a study of past international crises' effects on stock markets.

"If (an Iraq invasion) just muddies things up in the Middle East and things look worse, maybe Vietnam is a better comparison" than World War II, he says.

Compiled from reports by the Washington Post and the Wall Street Journal.

www.morningstar.ca 27 Jan 03(6:48 PM) |  E-mail Article to a Friend

By Jeffrey Jones

CALGARY, Alberta (Reuters) - Canadian Pacific Railway <CP.TO> said on Monday its fourth-quarter profit rose 29 percent as the country's No. 2 railroad had a foreign exchange gain and weathered the impact of the drought-stricken western grain crop.

But operating income at CP Rail, which just wrapped up its first full year as a stand-alone firm after its spinoff from defunct Canadian Pacific Ltd., slipped a bit as expenses like employee bonuses and purchased services nudged up 3 percent.

It earned C$126 million ($83 million), or 79 Canadian cents a share, in the fourth quarter, up from year-earlier C$98 million, or 62 Canadian cents a share.

That beat an average estimate of 71 Canadian cents a share among analysts polled by Thomson First Call.

Net income included a C$6.1 million gain from the impact of a strong Canadian dollar on its long-term debt. Without one-time items, profit was C$120 million, down from C$124 million.

Revenues were C$950 million, about flat with the fourth quarter of 2001.

For the full year, net income jumped 33 percent to a company record of C$496 million, or C$3.11 a share, from C$373 million, or C$2.34 a share.

CP Rail said quarterly results were cushioned from an 18 percent drop in grain revenue and a 16 percent fall in coal shipments by large gains in fertilizer, industrial, automotive and especially truck-train intermodal revenues.

This year's grain crop outlook remains a big unknown after two years of drought have led to poor harvests, it said.

The results contrasted sharply those of top competitor Canadian Natural Railway Co. <CNR.TO>, which reported last week its net income fell sharply because of charges from layoffs and asbestos-related injury claims.

"The bottom line is I'm very pleased with what we accomplished this year in spite of the worst Canadian grain crop since I can remember," CP Rail chief executive Rob Ritchie told reporters.

Ritchie predicted similar pressures in 2003, including economic uncertainty and high fuel prices, but said he expected the railway to manage those factors.

"Assuming a grain crop approaching normal levels, we expect to see revenue growth in the 3 to 4 percent range for 2003," he said. Much of that rests on the likelihood of a stronger economy in Canada compared with the United States, he said.

The carrier's operating ratio, or expenses as a percentage of revenues, weakened to 75 percent from 72.5 percent in the fourth quarter of 2001. But it improved to a company record of 76.6 percent for the year and Ritchie said CP Rail was on track to achieve its target of 73 percent in 2004.

During the quarter, fuel costs rose only 0.8 percent despite world oil prices surging 38 percent over fears of a war with Iraq and the protracted strike that has cut shipments from major exporter Venezuela.

Executives cited CP Rail's fuel hedging activities as well as conservation initiatives for the showing.

Chief financial officer Mike Waites said the railway would also reap rewards in the current quarter with 41 percent of fuel needs locked in at C$21.95 a barrel, compared with the current price of more than $32.

Shares in CP Rail fell 52 Canadian cents to C$29.38 in Toronto on Monday, representing a nearly flat performance since the start of the fourth quarter. The Toronto Stock Exchange's main index has risen about 5.5 percent during the same period.

($1=$1.52 Canadian)

www.miami.com Posted on Mon, Jan. 27, 2003 Associated Press

NEW YORK - Via The Associated Press

Crude oil futures fell sharply Monday, weighed down by growing calls for continued inspections of Iraq's suspected weapons of mass destruction and signs of a breakdown in the strike in Venezuela.

On the New York Mercantile Exchange, nearby March crude oil dropped 99 cents to close at $32.29 a barrel, surrendering most of Friday's gains.

February heating oil shed 1.59 cent to close at 93.43 cents a gallon, while February gasoline was off 2.10 cents at 90.15 cents a gallon.

On London's International Petroleum Exchange, March crude fell 63 cents to close at $29.86 a barrel.

"I think the market is not looking for a Groundhog Day launch date," Tim Evans, an energy analyst at IFR Pegasus, said of a possible attack on Iraq. "I think the background concern is there, but the market is indicating a release of tensions regarding an attack on Iraq."

That release of tensions deepened as Chief U.N. weapons inspector Hans Blix delivered a mixed report to the Security Council that failed to provide an automatic trigger for action against Iraq, as many had speculated.

Blix said that while Iraq wasn't fully complying with disarmament demands, it was providing access to his team of inspectors now working in the country. On the question of how long inspectors need, Blix said he shared "the sense of urgency" to verify disarmament within "a reasonable period of time."

He didn't request more time, but Mohamed ElBaradei, the head of the U.N. nuclear agency, said the weapons search needed an extra few months.

Secretary of State Colin Powell said the inspectors' conclusion wasn't surprising and added that time is running out for Iraq.

"We cannot allow the process of inspections to string us out forever," Powell said.

The State Department has reportedly begun drafting a second resolution calling for authorizing force against Iraq, Cable News Network reported.

But Powell said America will decide on the next step once he consults other members of the Security Council and President Bush has conferred with foreign leaders.

Nevertheless, there was a chorus of calls that inspectors should be given more time to complete their work. The calls came from Russia and China as well as traditional U.S. allies France, Germany and Canada.

"There wasn't enough to make the U.S. change its position, and there wasn't enough new information to make France or Russia or China or Germany or the rest of the world change their view of the situation," Evans said.

The oil market had anticipated that a U.S. attack could come as soon as early- to mid-February, said Tom Bentz, an analyst at BNP Paribas Futures in New York. But with growing calls for more inspections, that may be several weeks away, Bentz added.

"It doesn't look like anything is going to happen immediately," Bentz said. "It's going to take time."

Meanwhile in Venezuela, there were signs that the general strike is crumbling, allowing oil production to recover from a sharp slump in December and January.

Output has risen to about 1 million barrels a day, according to dissident workers at state-owned Petroleos de Venezuela SA. A PdVSA spokesman said about 90 percent of workers at PdVSA have returned to work.

Before the strike, Venezuela produced about 3 million barrels a day of oil, sending about 2.5 million barrels a day to world markets, including 1.5 million barrels a day to the United States.

"It's going to take a while to get exports back to full capacity, but there are signs that the worst is behind us," said Ed Silliere, an analyst at Energy Merchant in New York.

www.forbes.com Reuters, 01.27.03, 5:37 PM ET

NEW YORK (Reuters) - Cocoa prices jumped to the highest level in three months Monday as angry street protests in top exporter Ivory Coast fed more worries that world supplies will be disrupted this year. In other commodity trade, oil prices slid as the outlook for more weapons inspections in Iraq would likely delay a U.S.-led military assault there. Gold prices edged higher as Wall Street stocks fell and wheat plummeted on profit-taking.

At the New York Board of Trade, cocoa for March delivery closed $63 higher at $2,250 per metric ton, the highest closing price since Oct. 15.

Ivory Coast was plunged into crisis by a coup attempt on Sept. 19. The putsch failed, but ensuing civil war has left hundreds dead, displaced more than 1 million and split the country of 16 million along ethnic lines -- a rebel-held, largely Muslim north and a heavily Christian south.

On Monday, street protests in Ivory Coast for a third day over a peace deal with rebels were posing a serious threat to cocoa shipments and export loadings, industry sources said.

Gangs of youths, some armed with machetes, blocked streets in Abidjan in protest against the peace deal they saw as imposed by former colonial power France. Ivory Coast President Laurent Gbagbo urged the youths to remain calm after he agreed to a power-sharing accord that will bring the rebels into a coalition government.

Residents said the protests spread to key cocoa towns Monday, with demonstrators taking to the streets of San Pedro -- the country's main port for cocoa -- Gagnoa and Soubre.

"If trouble goes on, the ports will be inaccessible for cocoa trucks and the work force won't be at work," a leading exporter in Abidjan said. "We are all waiting to see what will happen during the day, but in any case nobody is at work.

Exporters also feared more troubles in the bush. Most cocoa workers in the west are from Burkina Faso or other Muslim neighbors, who are widely seen as sympathetic to the rebels.

"We have to expect more problems in the cocoa sector as local farmers accuse cocoa workers of financing the rebels with their cocoa beans," a leading San Pedro-based buyer said.

Ivory Coast usually accounts for 40 percent of world cocoa supplies each year to chocolate manufacturers.

At the New York Mercantile Exchange, crude oil prices fell 3 percent after United Nations arms inspectors offered little evidence that Iraq was hiding banned weapons.

U.N. Secretary General Kofi Annan then called for more time for inspectors to finish their job in Iraq.

March crude oil closed 99 cents lower at $32.29 a barrel, down about $3 from the 26-month of $35.20 high struck last week on fears of war in Iraq.

In London, March Brent crude oil fell 63 cents at $29.86. News that anti-government protesters in Venezuela were debating on a limited rollback of their disruptive 57-day-old general strike also weighed on crude oil and product prices.

NYMEX March gasoline fell 1.93 cents to 90.67 cents a gallon. March heating oil fell 1.85 cents a gallon to 88.87.

Hans Blix, chief U.N. arms inspector, reported to the U.N. Security Council on Monday after two months of inspections, detailing gaps in information that Iraq should have delivered by now. But he said those gaps could not lead him to conclude Baghdad possessed prohibited arms.

The White House said Blix's report showed Baghdad failed to comply with U.N. disarmament demands and warned the inspections process was "running out of time." On Sunday, Secretary of State Colin Powell said the United States was prepared to go to war against Iraq with or without its European allies.

Those sentiments also jostled the gold market, which closed below six-year highs set earlier in the day ahead of the Blix remarks. COMEX February gold closed $1.00 higher at $369.40 an ounce after reaching its highest level since November 1996.

Gold bullion in London was fixed at a six-year high in the morning at $370.80 but eased to $368.50 at the afternoon fix.

At the Chicago Board of Trade, dismal wheat export business sparked speculative profit-taking in wheat despite worries that bitter cold weather in the Plains and Midwest may have hurt some of the dormant winter wheat crop in recent days.

March wheat closed 8 cents lower at $3.10-1/2 a bushel.

"I haven't seen or heard anything other than technical fund selling that would do this," said analyst Lisa Wheeler at Cargill Investor Services. "Exports aren't good, but we've known that for quite a while. I think this was purely technical."

The U.S. Department of Agriculture on Monday said U.S. wheat inspected for export last week totaled less than 7 million bushels. Traders had expected 13 million to 17 million bushels.

March corn closed 1/2 cent lower at $2.35 a bushel and March soybeans closed 1-3/4 cents lower at $5.67-1/4.

money.cnn.com January 27, 2003: 3:30 PM EST

Fear of war with Iraq takes its toll on U.S. markets; blue chip average at its lowest in 3 months.

NEW YORK (CNN/Money) - Investors continued to pummel the stock market Monday afternoon after progress reports from U.N. weapons inspectors failed to quell fears about the likelihood of war with Iraq.

Shortly after 3:00 p.m. ET, the Dow Jones industrial average (down 109.77 to 8021.24, Charts) and the S&P 500 index (down 11.49 to 849.91, Charts) both lost just under 2 percent, while the Nasdaq composite (down 15.45 to 1326.69, Charts) lost more than 1.5 percent. The Dow's decline continued to outpace that of the other indexes, and the average briefly fell below 8,000 for the first time since October. Its losses Monday came on top of a 5-percent decline last week.

"The market has had war jitters and that, to a large extent, is responsible for a lot of the retreat over the last few weeks, but the decline comes with the backdrop of other things," said Michael Carty, principal at New Millennium Advisors. "You have worries about North Korea, Venezuela, the elections in Israel, you have companies saying that they won't provide guidance, like McDonald's and Coca-Cola. There are tremendous amounts of cash out there, but nobody wants to get in."

Chief U.N. weapons inspector Hans Blix delivered his team's 60-day progress report to the U.N. Security Council Monday morning. Blix said that although Iraq has cooperated with U.N. inspectors, it has failed to offer proof of its complete disarmament from weapons of mass destruction. The report by Blix and International Atomic Energy Agency director general Mohamed ElBaradei indicated that inspectors would need more time to complete their task in Iraq.

Uncertainty over whether inspectors will get an extension for their work has left investors skittish and has pressured U.S. stock markets and the dollar. Although several key members of the Security Council, including France and Germany, have said inspectors should be given more time, U.S. officials have stated that the country is prepared to go to war with Iraq alone.

"You had a terrible day Friday with the market pricing in the reality of these events and you have a continuation of that reaction now. There are no surprises. It's pretty much across-the-board negativity," said Douglas Altabef, managing director at Matrix Asset Advisors.

Following the morning's reports, Bush Administration officials said that Iraq was not in compliance and that the U.N. needed to reassess how it approaches the situation.

"The U.N. says go slow, the U.S. says the fact that Blix can't find anything is more of a comment on Blix than anything else," Matrix Asset Advisors' Altabef added. "The point is, Bush is not going to be deterred by these findings."

The Iraqi weather is also a factor in any military action, Altabef said, noting that if the Bush Admininstration is going to act, it will need to do so soon, because after April, extremely hot weather would impact military action.

The United States' position will become more clear Tuesday, when President George Bush is scheduled to deliver his annual State of the Union address, a portion of which is expected to be dedicated to the government's views on Iraq.

Another factor likely to impact the market in the coming days is the two-day meeting of the Federal Reserve's policy setting Federal Open Market Committee, set to begin Tuesday. Tech stocks lag, too

The day's corporate news was scattered and mostly bearish. Two of the technology sector's titans, Microsoft (MSFT: down $0.81 to $49.04, Research, Estimates) Chairman Bill Gates and Hewlett-Packard (HPQ: down $0.52 to $18.23, Research, Estimates) CEO Carly Fiorina, both said over the weekend at the World Economic Forum in Davos, Switzerland, that they don't see demand for new information technology picking up anytime soon.

Most major technology stocks, including Microsoft and Hewlett-Packard, declined. Microsoft, a member of the Dow industrials, was the Nasdaq's No. 1 most active issue.

Although the period of reporting fourth-quarter earnings is coming to a close, a few big names are still expected to report results this week. Dow component American Express (AXP: up $0.08 to $33.78, Research, Estimates) reported a profit of 52 cents per share, more than twice what it earned a year earlier and a penny better than what analysts were expecting. The company is the first of 11 Dow components due to report results this week. Its stock, which had been down all morning, rose modestly after the report.

Shares of Dow component Johnson & Johnson (JNJ: down $1.31 to $52.30, Research, Estimates) fell after the consumer products company said late Friday that it will take a charge in the fourth quarter after a court ordered it to reimburse Amgen (AMGN: down $1.46 to $50.78, Research, Estimates) for attorneys' fees and other costs associated with a licensing dispute.

On the Nasdaq, shares of i2 Technologies (ITWO: down $0.32 to $0.94, Research, Estimates) lost 25 percent in active trade after the business software maker said it would need to reaudit 2001 and 2002 results after the Securities and Exchange Commission began an informal inquiry.

Gold climbed $1 to $369.40 an ounce, after having risen above $370 for the first time in about six years earlier in the session.

Market breadth was negative, with losers beating gainers both on the New York Stock Exchange, by about 3 to 1, and on the Nasdaq, by more than 11 to 5. Some 1.07 billion shares changed hands on the NYSE and 1.12 billion shares traded on the Nasdaq.

Bond prices fell, pushing the yield on the 10-year note up to 3.97 percent from 3.93 percent late Friday. Bond prices and yields move in opposite directions.

The dollar continued to lose ground against the euro, but rose modestly against the yen.

The war rumblings fueled buying in oil futures overnight, but light crude retreated in New York after the day's announcements, with its price falling 80 cents to $32.48 a barrel.

Overseas stock markets took a beating, unsettled by the increasing prospect of war in the Middle East. European stocks closed lower, while Asian-Pacific markets also lost ground, with Tokyo's Nikkei 225 index shedding 1.4 percent.