Dow falls 152
after fund’s bailout

Investors cash in on recent rally
as global worries resurface

NEW YORK -- Stocks fell sharply today after the near-collapse of hedge fund Long-Term Capital Management LP raised concern about the health of the financial system.

Wall Street traders also sold shares to cash in on the powerful gains yesterday that followed Federal Reserve Chairman Alan Greenspan's strong hint of an interest-rate cut.

The Dow Jones industrial average -- up 257.21 points, or 3.3 percent, yesterday -- closed with a loss of 152.42, or 1.9 percent, at 8,001.99. The blue-chip index pared its losses at the end of the day after nearly surrendering all of yesterday's big gain. Trading was heavy but below yesterday's frenzied pace.

With the drop, the Dow is 14.3 percent below its July 17 record of 9,337.97, but 1.2 percent above where it began the year.

Broader stock indicators also suffered heavy losses as portfolio managers, facing the imminent close to a bruising quarter, tried to protect some of yesterday's unexpected bounty.

The Standard & Poor's 500 fell 23.37 to 1,042.72, and the technology-heavy Nasdaq composite index fell 39.93 to 1,720.34.

Decliners outnumbered advancers by nearly a 2-to-1 margin on the New York Stock Exchange, with 1,089 up, 2,042 down and 413 unchanged.

NYSE volume totaled 799.67 million shares, down from 897.56 million at the same point yesterday.

The NYSE composite index fell 10.36 to 516.59, and the American Stock Exchange composite index fell 3.78 to 642.30.

The Russell 2000 index of smaller companies fell 5.75 to 370.25.

The yield on the 30-year Treasury bond rose 4/32 to 105 5/32, with the yield falling to 5.16 percent.

Banks tumbled after UBS AG, the world's second-largest bank, said it expects a third-quarter loss of as much as 1 billion Swiss francs ($720 million) related to losses in emerging markets and its exposure to Long-Term Capital. Wall Street's $3.5 billion bailout of the Greenwich, Conn.-based hedge fund caused investors to wonder whether other bad surprises are in store.

"There's a credit crisis going on around the world, and it was brought home to us in spades by the bailout," said Henry Cavanna, a managing director and money manager at J.P. Morgan Investment Management, which oversees $300 billion. "All the major banks and brokerages have exposure" to the firm.

"We're not out of the woods yet."

Yesterday's rally was the fifth-largest point gain ever for the Dow and also sent broader indicators rising sharply. Today, broader indicators fell on profit-taking and worries about upcoming corporate earnings reports.

But Asian markets soared earlier today, lifted by hopes that falling interest rates would help fight economic crises that have engulfed the region, spread to Russia and threaten Latin America. European markets, which opened higher, gave up their gains to close with losses.

The Financial Times-Stock Exchange 100-share index in London, up 107 points in the morning, reversed course and fell 47.1 points to close with a loss of 0.9 percent. Traders said the market sagged after a Confederation of British Industry survey said export orders for U.K. manufacturers fell to 15-year lows.

"The good news at this stage is that the Fed will cut rates at some stage, while the bad news is that things are certainly going to get worse," said Peter Caulkett, a salesman at Teather and Greenwood in London.

Frankfurt, Germany's key index closed down 1.1 percent amid nervousness in advance of the national election Sunday. In Paris, the main market gauge fell 1.2 percent.

Key market indicators closed with gains of 3 percent in Japan, 4.4 percent in Hong Kong and 6.4 percent in South Korea.

Asian analysts attributed the stock rally to Greenspan's testimony yesterday to the Senate Budget Committee. He said the central bank's policy-makers, who meet Tuesday, know they have to act quickly to contain the global crisis. Traders and analysts said it was a clear sign that rates would be cut soon.

Greenspan indicated the central bank was ready to act to prevent the widening global turmoil "from really spilling over and creating some very significant difficulties for all of us."

There was more evidence today of a cooling economy in the United States. The government reported the gross domestic product -- the sum of all goods and services produced within U.S. borders -- advanced at a 1.8 percent annual rate in the second quarter of this year after shooting up at a 5.5 percent rate during the first three months of the year.

Economists often disagree over whether a small U.S. interest rate cut would have much of a long-term impact on other countries, especially the markets of Asia, where some countries are working hard to overhaul the structures of their battered economies.

But a cut in U.S. lending rates could help bolster global confidence by showing that the United States will continue to serve as an economic engine for the rest of the world.