US stocks fell on Tuesday, taking a late-day nose dive after remarks from Federal Reserve Chairman Alan Greenspan whipped up worries about an impending interest-rate hike by the central bank.
However, the sell-off could be a one-day event as Motorola Inc appeared set to give the telecommunications sector a hefty boost when the market reopens on Wednesday, after the cellphone maker blew past Wall Street's profit expectations and gave a surprisingly strong second-quarter forecast. Its shares surged 25 percent in extended-hours trading.
Rivals Nokia and Ericsson also rose sharply after the bell, and the Nasdaq-100 After Hours Indicator rose 0.7 percent.
During the regular session, investors sorted through a mixed bag of reports from Corporate America in what is one of the busiest weeks of the earnings season.
A disappointing profit from Pfizer Inc and a lacklustre forecast from Lucent Technologies Inc weighed on the market, while strong results from General Motors Corp helped limit losses.
Investors were unsettled late in the day by comments from Fed chief Greenspan, who told the Senate Banking Committee that the US economy seemed to have turned the corner and the threat of deflation was over.
The remarks prompted speculation that the Fed could act soon to raise rates to stamp out any early signs of inflation.
Major market gauges, which had spent most of the day nearly unchanged, tumbled after Greenspan's remarks, ending at their lowest levels in about three weeks. The Dow Jones industrial average dropped 123.35 points, or 1.18 percent, to 10,314.50. The Standard & Poor's 500 Index dropped 17.67 points, or 1.56 percent, to 1,118.15, posting its biggest one-day percentage loss since September. The technology-laced Nasdaq Composite Index dropped 41.80 points, or 2.07 percent, to 1,978.63.
"Stock valuations are OK as long as interest rates stay low," said Edgar Peters, chief investment officer at Boston-based PanAgora Asset Management Inc. "When interest rates start rising, it won't take much more for stocks to become overvalued again."
All eyes are on earnings with about a third of the Standard & Poor's 500 companies scheduled to post results this week and many of them offering forecasts.
After the close, Motorola's shares surged to $20.25 on the INET electronic brokerage system from $16.22 at their close on the New York Stock Exchange. US-traded shares of other leading cellphone firms like Nokia and Ericsson also rose sharply after the bell. Wireless technology firm Qualcomm Inc also rose after the bell.
GM raised its full-year earnings forecast after reporting a better-than-expected first-quarter profit on stronger results from its finance arm and automotive operations in Asia.
Shares of GM, the world's largest auto-maker, rose $1.62, or 3.5 percent, to $47.77.
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