(Updates to early morning)
NEW YORK, Sept 27 (Reuters) - Stocks fell in early morning trade on Friday, pulling the Dow more than 1 percent lower, on bearish investment calls on conglomerate General Electric Co. and a grim forecast from cigarette maker Philip Morris Cos. Inc. .
"The market wants to believe in the upside, but it doesn't have enough tangible proof that the earnings picture has turned," said Paul Cherney, chief real-time market analyst at S&P Marketscope.
The blue-chip Dow Jones industrial average fell 107 points, or 1.34 percent, to 7,889, after a two-day run-up. The broad Standard & Poor's 500 Index lost 8 points, or 0.98 percent, to 846. The technology-laced Nasdaq Composite Index eased 4 points, or 0.33 percent, to 1,217.
Cherney said window-dressing was offering support to the market. Monday is the last day of the third quarter, which could bring swings in the market as money managers dress up their portfolios by dropping the quarter's losers and adding winners.
Lehman Brothers and Credit Suisse First Boston cut their investment ratings on GE a day after the conglomerate held a conference call with analysts. The two investment banks said a recovery in such "short-cycle" businesses as its plastics unit seems to have stalled and its finance unit is under pressure. GE fell $1.35, or more than 5 percent, to $25.02.
Philip Morris, the world's largest cigarette maker and another member of the Dow, slashed its full-year outlook, saying that despite heavy promotions of its premium-priced brands, consumers have turned to deep-discount rivals. Philip Morris sank $4.85, or more than 11 percent, to $37.87.
Citigroup Inc. , seeking to end probes into its stock-research practices, added 74 cents to $30.25. The financial giant will meet with federal regulators Friday to propose a settlement that includes plans to sever ties between its research and investment-banking businesses, The Wall Street Journal reported.
Children's Place Retail Stores Inc. tumbled $3.31, or more than 20 percent, to $12.83. The company warned that earnings will fall far short of Wall Street forecasts in the second half of the year because of plummeting sales and problems with its fall merchandise.
Drugmaker Wyeth sank $5.45, or more than 14 percent, to $33. The company warned earnings for the year will fall short of expectations, as sales of its flagship hormone replacement products slowed after prominent medical journal articles questioned the safety of the drugs.
The market barely budget after a fresh report showing that U.S. consumer sentiment dropped for a fourth month in September. The University of Michigan's final September consumer sentiment index fell to 86.1 from 87.6 in August, market sources said on Friday. That was slightly above economists' forecasts for a reading of 85.9.