Dow Drops 300 After Fed Cuts Rates

[Jasman0717 8]

NEW YORK (AP) - The Dow Jones industrial average has plunged more than 300 points as investors disappointed by the Federal Reserve's rate cut sold off stocks. In late afternoon trading, the Dow is down 303.61 to 13,423.42.

The Fed lowered its benchmark interest rate by 0.25 percentage points, disappointing some investors who hoped the central bank would take more aggressive measures. The Dow Jones industrial average, which had been up about 40 points before the decision, fell 300 points.

Investors had been expecting policymakers would cut rates for a third straight time, though there was debate over the size of the cut. Most economists had been expecting a quarter-point cut in the benchmark federal funds rate to 4.25 percent - but some investors were hoping for a half-point cut in the Fed's last meeting this year, and their disappointment took the market lower. The Fed as expected also cut the discount rate, the rate it charges to lend directly to banks, by a quarter-point to 4.75 percent.

Fed officials signaled that further cuts are possible if a severe downturn in housing and a crisis in mortgage lending worsen. Investors had sent stocks higher in recent weeks as they grew more confident in the Fed's openness to loosening its policy again.

The Fed's accompanying statement also displeased investors, saying "information suggests that economic growth is slowing," but standing firm on a quarter-point cut for now.

"Expectations may have been for a more meaningful move based on the swirl in the financial markets now. But the Fed is acknowledging that maybe things on Main Street aren't as bad as they are on Wall Street," said Bill Knapp, economist and chief investment strategist for MainStay Investments, a division of New York Life Investment Management.

Broader indexes also fell. The Standard & Poor's 500 index fell 30.57, or 2.02 percent, to 1,485.39, and the Nasdaq composite index fell 52.17, or 1.92 percent, to 2,666.78. Gold prices fell while the dollar was mixed against other major currencies.

Declining issues outpaced advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 992.6 million shares.

Bond prices rose sharply. The 10-year Treasury note's yield, which moves opposite the price, fell to 4.02 percent from 4.16 percent late Monday.

Oil prices rose, but came off earlier highs after the Fed's decision. Lower interest rates could bolster energy demand from the world's biggest oil consumer. Light, sweet crude for January delivery rose $1.99 to $89.85 a barrel on the New York Mercantile Exchange.

"Time will tell if this restores enough confidence in the system. They're saying that this with the other cuts that we have done should promote growth over time. It's a telegraph that we think this is a sufficient move to alleviate the stresses on the market," Knapp said.

The Fed's rate decision - and Wall Street's disappointment - followed further word of trouble in the banking sector. Washington Mutual Inc. (WM) became the latest lender to resort to a massive stock sale to shore up its finances. WaMu's plan to sell $2.5 billion worth of convertible preferred stock follows a move by Switzerland-based UBS AG (UBS) to sell $11.5 billion in shares to Singapore's sovereign wealth fund and an unidentified Middle Eastern investor.

Some of the market's recent concern has stemmed from recent problems at global banks, including Washington Mutual, said MF Global fixed income analyst Jessica Hoversen.

"Sovereign wealth funds are trying to bail out the financial sector, but they're coming in at vulture prices," she said. "That I think is a big issue for the market. While they want to believe there is still value in the financial sector, we've come a long way down."

Washington Mutual shares fell $1.80, or 9.1 percent, to $18.08 after the nation's largest savings and loan also said it will close offices, lay off more than 3,000 workers, and slash its dividend. The bank also set aside up to $1.6 billion for loan losses in the fourth quarter.

In other corporate news, Citigroup Inc. (C) named Vikram Pandit, the head of its investment banking business, as its chief executive officer, charging him with restoring the bank's profitability and reputation after missteps in lending and investing left Citi with billions of dollars in losses this year. Citi fell $1.02, or 2.9 percent, to $33.75.

Texas Instruments Corp. rose 53 cents to $33.20 after lifting the low end of its earnings and revenue forecast.

AT&T Inc. (ATT) rose $1.88, or 5 percent, to $39.78 after the telecommunications company said it would buy back 400 million shares and raise its dividend 12.7 percent. The buyback represents about 7 percent of the company's stock and will be completed by the end of 2009.

Beyond the Fed's announcement and corporate news, investors had weighed other economic news. The Commerce Department reported U.S. wholesale inventories were little changed during October, a sign businesses might be trying to keep supplies lean. The flat reading in October inventories came short of Wall Street expectations for a 0.4 percent increase.

The Russell 2000 index of smaller companies fell 18.99, or 2.40 percent, to 772.21. Overseas, Japan's Nikkei stock average closed up 0.76 percent, while Hong Kong's Hang Seng index added 2.55 percent. At the close, Britain's FTSE 100 fell 0.43 percent, Germany's DAX index shed 0.30 percent, and France's CAC-40 dropped 0.45 percent.

[mawilson 2,133]

Don't worry. Down 300 today, up 100 tomorrow, up 70 the day after tomorrow,

down 90 Friday, up 80 Monday, etc.

[Jaseball 0]

I personally never thought we should be lowering interest rates in the first place. The stock market is speculation and vapor money, unless you cash out and turn it into cash, so regardless of whether it is up, down or whatever our central banking should not be swayed by swings or even recession/depressions.

I'm still far more concerned with the strength of the US dollar and our economic weakness when compared to other countries in the world.

[mawilson 2,133]

I'm still far more concerned with the strength of the US dollar and our economic weakness when compared to other countries in the world.

Don't be. The dollar was overpriced and had to fall to correct global imbalances.

[GaryC 7]

Don't worry, the Dow is up 180 points this morning. Your 300 point drop will be erased soon.

[PalestineMyHeart 1,897]

Don't worry it's just the big playas shakin loose some of the sheepie's assets.... once they scoop up a hefty share of blue chips for chump change.... all will return to normal....