Dow fails to hold above 13,000 mark
NEW YORK » Wall Street tumbled again yesterday after the Federal Reserve added more cash to the banking system but failed to quash investors' jitters about problems in lending.
The market traded nervously, jerking the Dow Jones industrial average above and below the 13,000 mark throughout the day as investors wrestled with reports about potential trouble at Countrywide Financial Corp. and KKR Financial Holdings LLC.
By late in the day, investors saw little reason to buy beyond the fact that stocks are at bargain prices right now, and the Dow closed down nearly 170 points. The Standard & Poor's 500 index also dropped sharply, and is now down for the year.
Central banks worldwide have supplied billions of funds to banks over the past week to make cash available for lending and keep interest rates stable amid signs that credit was drying up. Yesterday, the Fed said it would accept a "repo" of $7 billion, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks.
Still, the Fed has not indicated that it will free up more cash by making an interest rate cut at its Sept. 18 meeting, a move that many on Wall Street believe could stoke a stock recovery. Inflation has been keeping the central bank from lowering rates; the U.S. Labor Department said yesterday its Consumer Price Index rose a mild 0.1 percent in July, as expected.
"Yes, the market would probably move dramatically higher if they made a cut," said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "But I think it's more prudent to allow this correction to continue to unfold."
The Dow fell 167.45, or 1.29 percent, to 12,861.47, closing below 13,000 for the first time since April 24 and continuing a pattern of triple-digit moves.
Broader stock indicators also fell. The S&P 500 index dropped 19.84, or 1.39 percent, to 1,406.70. The Nasdaq composite index lost 40.29, or 1.61 percent, to 2,458.83.
Bonds rose, moving in the opposite direction as stocks. The yield on the benchmark 10-year Treasury note fell to 4.72 percent from 4.73 percent late Tuesday.
The Russell 2000 index of smaller companies fell 11.33, or 1.49 percent, to 751.54.
Declining issues outnumbered advancers by 5 to 1 on the New York Stock Exchange, where trading volume came to 1.99 billion shares, up from 1.6 billion Tuesday.
Gold prices rose. The dollar rose against the euro and British pound, but fell versus the yen.
Crude futures rose 95 cents to $73.33 a barrel on the New York Mercantile Exchange, after momentarily surpassing $74.
Investors sold off, focusing on the possibility of problems at lenders like Countrywide Financial. Merrill Lynch issued a "sell" rating on the stock, kindling worries about the biggest U.S. home lender's ability to raise cash to secure short-term funds.
Countrywide sunk $3.17, or 13 percent, to $21.19.
KKR Financial said it sold about $5.1 billion in residential mortgage loans in a move that will result in a $40 million loss for the specialty finance firm.
KKR fell $4.76, or 31 percent, to $10.52.