* Manufacturing sector contraction sparks slowdown concerns
* Bank, airline stocks tumble; defense stocks rise
* Indexes down: Dow 0.81%, S&P 0.71%, Nasdaq 0.79%
(Updates to market close)
By April Joyner
NEW YORK, Jan 3 (Reuters) - Wall Street's major indexes fell
from record highs on Friday after a U.S. air strike in Iraq
ratcheted up tensions in the Middle East and a
bigger-than-expected contraction in the U.S. manufacturing
sector raised concerns of slowing economic growth.
Friday's decline put the benchmark S&P 500 in the red for
the week, snapping a five-week winning streak for the index.
Demand for safe-haven assets soared as Iran vowed revenge
for the killing of Qassem Soleimani, head of its elite Quds
Force, in an air strike authorized by U.S. President Donald
Trump. In a further blow to U.S. market sentiment, data from the
Institute for Supply Management showed that U.S. factory
activity contracted in December by the most in more than a
decade. "There was a reinforcement of weak manufacturing activity
and then you had the geopolitical spark," said Michael
Antonelli, market strategist at Robert W. Baird in Milwaukee.
"That's on top of the sentiment that the market has been
overbought."
S&P 500 bank stocks .SPXBK dropped 1.6% as the news sent
benchmark U.S. bond yields US10YT=RR to their lowest since
Dec. 12.
Shares of airlines also tumbled as oil prices jumped about
3%. American Airlines Group Inc AAL.O shares dropped 5.0%,
while shares of United Airlines Holdings Inc UAL.O fell 2.1%.
Among the S&P 500's 11 major sectors, only real estate
.SPLRCR and utilities .SPLRCU - both considered defensive
plays - ended higher.
In a sign of investor jitters, U.S. stocks extended their
fall following a false report of an attack on a U.S. military
base in Iraq. Shares of U.S. defense companies jumped on news of the air
strike that killed Soleimani. Northrop Grumman Corp NOC.N
shares climbed 5.4% and Lockheed Martin Corp LMT.N shares rose
3.6%. The two provided the biggest boosts to the S&P 500.
The market disturbance following the strike could be
fleeting, said Wayne Wicker, chief investment officer of
Vantagepoint Investment Advisers in Washington.
"We've looked at many types of conflicts over the last 20
years, and they've had much more of a short-term impact," Wicker
said.
The Dow Jones Industrial Average .DJI fell 233.92 points,
or 0.81%, to 28,634.88. The S&P 500 .SPX lost 23 points, or
0.71%, to 3,234.85. The Nasdaq Composite .IXIC dropped 71.42
points, or 0.79%, to 9,020.77.
For the week, the Dow dipped 0.04%, the S&P 500 fell 0.17%,
and the Nasdaq rose 0.16%.
Among advancers, Tesla Inc TSLA.O shares hit a record high
and ended up 3.0% after the automaker beat estimates for vehicle
deliveries in the fourth quarter. Lamb Weston Holdings Inc LW.N shares surged 11.3%, the
biggest percentage gain on the S&P 500, after the frozen foods
supplier's quarterly results surpassed estimates.
Shares of retailer L Brands Inc LB.N rose 7.8% after Bank
of America upgraded its rating on the company's stock.
Declining issues outnumbered advancing ones on the NYSE by a
1.14-to-1 ratio. On Nasdaq, a 1.71-to-1 ratio favored decliners.
The S&P 500 posted 22 new 52-week highs and one new low. The
Nasdaq Composite recorded 60 new highs and 15 new lows.
Volume on U.S. exchanges was 7.47 billion shares, compared
to the 6.87 billion average for the full session over the last
20 trading days.