(RTTNews) - After showing a strong upward move at the open, stocks have given back some ground over the course of morning trading on Thursday. The downturn by the markets comes as traders digest a slew of economic news, including a report from the Philadelphia Federal Reserve showing a steep contraction in manufacturing activity.

The Philly Fed said its index of activity in the manufacturing sector fell to a negative 41.3 in February from a negative 24.3 in January, with a negative reading indicating a contraction in the sector. Economists had expected the index to edge down to a negative 25.0.

With the bigger than expected decrease, the Philly Fed index fell to its lowest reading since October of 1990.

The Philly Fed noted that all of the survey’s broad indicators for current activity remained negative and fell from their already low levels in January.

At the same time, the Conference Board said its leading indicators index rose 0.4 percent in January following a revised 0.2 percent increase in the previous month. Economists had expected the index to come in unchanged compared to the 0.3 percent increase originally reported for December.

In other economic news, a report from the Labor Department showed that initial jobless claims for the week ended February 14th came in at 627,000, unchanged from the revised figure for the previous week and moderately higher than the 620,000 that was expected by analysts.

Meanwhile, producer prices increased by much more than economists had been expecting in the month of January, according to a separate report released by the Labor Department, with the increase partly due to a modest rebound in energy prices.

The report showed that the producer price index rose 0.8 percent in January following a 1.9 percent decrease in the previous month. Economists had been expecting a more modest increase in prices of about 0.3 percent.

Excluding food and energy prices, the core producer price index rose 0.4 percent in January after edging up 0.2 percent in December. The increase by the core index also exceeded economist estimates of an increase of 0.1 percent.

In corporate news, Dow component Hewlett-Packard Co. (HPQ) reported that its first quarter profit fell 13 percent from last year amid sharp revenue drops in its PC, printer and server businesses in a challenging economic environment.

At the same time, the company forecast second quarter earnings below analysts’ current consensus estimate and lowered its earnings outlook for fiscal year 2009.

In recent trading, the Dow and the Nasdaq have slipped modestly below the unchanged, while the S&P 500 has remained positive. While the S&P 500 remains up 2.73 at 791.15, the Dow is down 0.40 at 7,555.23 and the Nasdaq is down 0.74 at 1,467.23.

Sector News

Despite the pull back by the broader markets, oil service stocks are holding onto strong gains amid an increase by the price of oil. With the price of oil up about $1 a barrel, the Philadelphia Oil Services Index is currently up 2.2 percent.

Within the sector, Rowan Companies Inc. (RDC) is turning in one of the day’s best performances, up 3.8 percent. The gain has taken the stock well off the nearly ten-year closing low it hit in the previous session.

Some of the strength from Rowan comes as the stock was upgraded to Market Perform from Underperform at Bernstein, along with Noble Corp. (NE), Ensco (ESV), Talisman Energy (TLM), and Chesapeake Energy (CHK).

Other notable gains are also being shown by airline stocks, with the Amex Airline Index up 2 percent despite the increase in the price of oil. Some of the strength comes as investors respond to a report that showed airline fatalities declined during 2008.

Telecom, health insurance, and steel stocks are also holding onto strong gains, although they have pulled back off their highs for the sesion.

At the other end of the spectrum, computer hardware stocks are turning in some of the worst performances of the day as investors pull out of the sector in response to Hewlett-Packard’s disappointing quarterly results.

Significant weakness that has emerged in the semiconductor, banking, and railroad stocks has also contributed to the pullback by the broader markets.

Stocks Driven By Analyst Comments

Granite Construction (GVA) is posting a gain of 5.6 percent following news that the stock was upgraded to Buy from Neutral at Goldman Sachs. The advance has taken the stock off of the over two month closing low it set in the previous session.

The upgrade was based on a defensive position and positive exposure to the new fiscal stimulus bill, as the majority of its income comes from infrastructure based construction.

Additionally, Suncor Energy (SU) is posting a gain of 4.2 percent on the day following an upgrade. Shares of Suncor were upgraded to Overweight from Equal Weight at Barclays Capital.

Meanwhile, Arbor Realty Trust (ABR) is down 12 percent after Wachovia downgraded the real estate trust to Market Perform from Outperform. With the decline, the stock has fallen to a new all-time intraday low.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region ended Thursday’s trading higher, with Japan’s benchmark Nikkei 225 Index closing up 0.3 percent.

The major European markets are also holding onto gains. The U.K.’s FTSE 100 Index is currently up 0.3 percent, while the French CAC 40 Index and the German DAX Index are up 0.5 percent and 0.7 percent, respectively.

In the bond market, treasuries are seeing notable weakness, although the benchmark ten-year note has moved well off its worst level of the day in recent trading. Subsequently, the yield on the ten-year note is currently up 9.6 basis points at 2.824 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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