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Stocks fall sharply after Fed's half-point interest rate cut

NEW YORK — Investors disappointed by the Federal Reserve's latest interest rate cut turned their fury on Wall Street yet again Tuesday, sending prices skidding lower and leaving the Dow Jones industrials at their lowest level in two years.

Many investors had hoped the Fed would lower rates by an aggressive 0.75 percentage point, but when the central bank announced in mid-afternoon it was lowering rates by 0.50 for the third time this year, prices began to slide.

Analysts called the market's mood about as grim as the litany of profit warnings that have pulled Wall Street's major indexes into bear market territory.

"Negative psychology is increasing and confidence is eroding," said Alan Ackerman, executive vice president of Fahnestock & Co. "It is fair to say, with prices drifting downward, everything appears to be for sale from Main Street to Wall Street."

The Dow Jones industrials ended a heavily traded session down 238.35 at 9,720.76, according to preliminary calculations. The last time the Dow closed lower was March 24, 1999, when it dropped 154.90 to 9,666.84.

The blue chips were trading at the 10,000 level just before the Fed announced its decision.

Broader market indicators also turned downward. The NASDAQ composite index tumbled 93.72 to 1,857.46, a closing low not seen since November 1998.

The Standard & Poor's 500, Wall Street's broadest indicator, fell 28.19 to 1,142.62. The last time the S&P closed that low was December 1998.

The market was disappointed by the Fed, Ackerman said, because the central bank needed to "do something dramatic to show that it recognizes the need for improved confidence," among consumers and investors. Many investors believed an extraordinarily large rate cut was needed to prompt consumers and businesses to increase spending and reinvigorate the economy.

Investors also sold amid confusion about just how much the economy is hurting, because economic data is unclear about the extent to which growth has slowed, said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co. He noted that while slumping consumer demand has created big inventory gluts, employment remains strong.

"The market is sort of groping for a bottom. We haven't had a real cathartic selloff, but last week felt pretty ugly," Hill said.

Wall Street's pessimism has been increasing since last week's debacle that gave the Dow its worst-ever weekly point drop of 821.21.

The companies whose bleak outlooks helped spur last week's big selloff traded sharply lower Tuesday, as well. Compaq Computer fell 85 cents to $17.75, while Oracle tumbled $1.06 to $14.38.

The Dow's losses large and widespread. Intel fell $2.44 to $24.63, and General Motors declined $1.10 to $55.19.

Advancing issues outnumbered decliners nearly 9 to 5 on the New York Stock Exchange where volume was 1.22 billion shares, compared with 1.11 billion on Monday.

The Russell 2000 index, which tracks the performance of smaller companies stock, fell 6.80 at 444.47.

Overseas, Japan's Nikkei stock average slipped 0.3 percent amid fears that deflation and banking problems would cripple the economy.

However, stocks in Europe moved higher. Germany's DAX index rose 2.2 percent, Britain's FT-SE 100 advanced 1.7 percent, and France's CAC-40 climbed 1.8 percent.


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