Wall St drops as some semis shine fades

Technology shares led US stocks lower after a downgrade of semiconductors on Monday, helping push the sector below a key technical level, which could mean further losses.

A semiconductor index dropped 3.1% and broke below its 50-day moving average, a widely followed technical level.

Wells Fargo downgraded the sector, noting it has more than doubled over the past two years.

The semiconductor index is up 45% since the start of September, roughly when the market's recent rally began, while the broad S&P 500 has advanced about 25% in that period.

Even though gains in semis have outpaced the broader market, the S&P 500 and the semiconductor index have been moving in the same direction, which could mean further declines in the sector and spell more of the same for the overall market.

A 20-day correlation between the S&P 500 and the semiconductor index was at 0.92, with a reading of 1 suggesting a perfect correlation.

Also weighing on Nasdaq, communications equipment maker Ciena Corp forecast weaker-than-expected sales, sending uits shares sliding 11.8% to USD 25.40.

Tech has been a favorite of analysts, along with other cyclical sectors.

Worries about the effects of recent higher oil prices on the economy have been a negative for stocks, but analysts recommend buying the energy sector.

"Industrials are ultimately affected by energy prices, so a sector that works as a hedge would be the energy sector," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois.

The Dow Jones industrial average dropped 106.03 points, or 0.87%, at 12,063.85. The Standard & Poor's 500 Index was down 13.76 points, or 1.04%, at 1,307.39. The Nasdaq Composite Index slid 53.10 points, or 1.91%, at 2,731.57.

Oil prices edged lower despite ongoing conflict in Libya and concerns about unrest in the region threatening oil flows from other producers. Brent crude dipped 0.8% at USD 115.20 a barrel.

The bearish views overshadowed enthusiasm about Monday's deal news.

Western Digital Corp jumped 11% to USD 33.33 after the world's No. 2 computer hard drive maker agreed to buy Hitachi Ltd's hard disk drive operations for about USD 4.3 billion in cash and stock.

Also, TomoTherapy Inc shot up 24.3% to USD 4.56 after Accuray Inc said it will acquire the smaller rival in the radiation oncology field.

Leading hedge fund managers raised bets on commodities in the fourth quarter, moving beyond gold to shares of raw materials producers.

Volume was about 4.6 billion shares, about in line with the average for afternoon trading.