Dow falls 238; bonds
soar to record

The post-rate-cut sell-off caps off
the worst quarter in 8 years

Associated Press

NEW YORK -- Investors pounded stock prices broadly lower today after deciding that a one-quarter-point interest-rate cut by the Federal Reserve would not be enough to rescue fourth-quarter corporate earnings. The Dow Jones industrial average tumbled 237.90 points at 7,842.62 and dipped into negative territory for the year at minus .83 percent. The sell-off climaxed the worst quarter for stocks in eight years.

Broad market indexes lost ground as well. The Standard & Poor's 500 index fell 32.01 to 1,017.01, and the Nasdaq composite index lost 40.21 to 1,693.84

Decliners outnumbered advancers by an 8-to-5 margin on the New York Stock Exchange, with 1,204 up, 1,930 down and 390 unchanged. NYSE volume totaled 797.77 million shares and, despite the absence of some traders for the Jewish holiday of Yom Kipper, exceeded the 744.21 million shares traded yesterday.

The NYSE composite index fell 13.81 to 504.47, and the American Stock Exchange composite index declined 7.35 to 621.00.

The Russell 2000 index of smaller companies fell 2.21 to 363.59.

Yesterday, the Fed lowered its target on the federal funds rate, which member banks charge each other for overnight loans, by 0.25 percentage point to 5.25 percent. The action sent bond prices soaring today, with the 30-year Treasury bond up 2 3/32 points to 108 10/32 and yielding 4.96 percent, the lowest rate since they were first issued in 1977.

As ebullient as bond investors were, stock investors were equally unhappy, fearing the Fed's move would not give corporate profits enough of a lift.

The lower interest rates are a "strong shot across the bow that deflation is much more serious than we thought," said Hugh Johnson, chief investment strategist at First Albany Corp. "When you see bonds go up in price and when you see stock prices go down, you know there are worries in the economy.

"Every day, we seem to get a new company saying they're going to be affected by the crisis" in Asia and Russia, Johnson said.

Yesterday, Northern Telecom Ltd. said its earnings growth would be less than expected, sending telecom stocks down today and adding to the ranks of companies warning of soft earnings.

Nortel's shares were down $3.63 at $32.25. Lucent Technologies Inc., another telecommunications company, was down $5.25 at $69.25 in leading volume on the NYSE.

Also yesterday, Gillette Co., RJR Nabisco Holdings Corp. and Unocal Corp. all warned that third-quarter profits would be far below analysts' previous estimates. Gillette gained 63 cents to $38.25, but RJR Nabisco fell $1.56 to $25.19 and Unocal slipped 50 cents to $36.25.

Banking stocks were down sharply, continuing to respond to concerns about banks' investments in hedge funds following the bailout of Long-Term Capital Management, and not taking much of a lift from a round of cuts in the prime rate to 8.25 percent from 8.50 percent. Shares of Chase Manhattan Corp. were down $1.63 to $43.37 after Chase said yesterday its hedge-fund exposures totaled $3.2 billion, only $300 million of which is unsecured.

Although the sharp drop in interest rates did not help bank stocks, it pushed utility stocks higher. The Dow Jones utility index rose 3.14 points.

The retreat on Wall Street came as leading international markets slumped.

In Europe, key indexes closed down 4.2 percent in Paris, 2.3 percent in Frankfurt, Germany, and 0.9 percent in London.