Markets take
New Year dive

Many investors apparently believe
that the Fed will raise interest rates at
its next meeting in February

Star-Bulletin news services

NEW YORK -- Stocks plunged today as fears of rising interest rates depressed blue chips for a second straight session and also prompted some investors to take profits from technology stocks.

The Dow Jones industrial average fell 359.58 points, or by 3.17 percent, to close at 10,997.93 in heavy trading. It was the fourth-biggest point drop ever for the Dow but was not close to its largest daily percentage decline.

The Nasdaq composite index, which closed at a record high yesterday, fell a record 229.66 points to 3,901.49. The Nasdaq drop surpassed the previous largest daily loss of 140.43 points set on Aug. 31, 1998, and today's 5.56 percent slide today was the seventh-largest ever in percent terms.

Investors continued selling that began yesterday as the market grew concerned that, now that concerns about Year 2000 computer bugs have passed, the nation's robust economic growth will prompt the Federal Reserve to raise interest rates.

Many investors now believe the Fed will raise interest rates at its next meeting on Feb. 1 and 2. The Fed left rates unchanged at its last meeting, hoping to ensure monetary stability while Y2K concerns played out around the world.

"Interest rates are going to weigh on the market," said Vincent Farrell, chief investment officer for Spears Benzak Salomon & Farrell Inc. "We're past Y2K; now you've got to focus on 'Gee, higher interest rates are bad for stocks.' "

U.S. markets took little notice of President Clinton's renomination of Alan Greenspan for another term as chairman of the Federal Reserve System. The announcement was widely expected.

But some of today's selling was also due to the fact that traders who enjoyed big gains at the end of 1999 can, with the arrival of the new year, take profits without having to pay taxes on their gains until 2001.

Analysts said a pullback after the market's December rally was expected.

"The market has had a very strong run," said Richard E. Cripps, chief market strategist for Legg Mason in Baltimore. "Higher interest rates are providing a catalyst for some selling that probably needs to take place before it can go any higher."

Bruce Bittles, an analyst with J.C. Bradford & Co., said, "People didn't want to sell in November and December, so the opening day is the first chance they get, and boom -- they start selling." Over the past five years, the S&P 500 fell at least two days in the first five trading sessions.

The Standard & Poor's 500 fell 55.80 points, or 3.83 percent, to close at 1,399.42 today.

Declining issues outnumbered advancers by a 5-to-2 margin on the New York Stock Exchange, with 2,236 down, 909 up and 394 unchanged.

NYSE volume totaled 989.86 million shares vs. 927.15 million yesterday.

The NYSE composite fell 20.65, or 3.23 percent, to 618.87; the American Stock Exchange dropped 19.09, or 2 percent, to 849.65; and the Russell 2000 index of smaller companies fell 18.04, or 3.63 percent, to 478.38.

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The Associated Press and Bloomberg News
contributed to this report.