Market retreats after Wednesday’s giddiness

NEW YORK » Stocks retreated yesterday as Wall Street took a breather from this week's recent rally, sobered a bit by mixed earnings reports, a tumbling dollar and surging oil prices.

Wall Street had driven the Dow Jones industrials up more than 400 points in the two days following the Fed's half-point rate reduction, so it was to be expected that investors would eventually stop to cash in gains.

"Historically, after the Fed eases, the market takes about a month to figure out whether the easing was a good thing or a bad thing," said Brian Gendreau, investment strategist for ING Investment Management.

Although the credit markets are improving, investors remain worried about the economy dipping into recession and unsure of where to put their money, Gendreau said.

"Now that the crisis is abating, the question is," he said, "what are we going to do next?"

Wall Street did get some good news yesterday. The U.S. Labor Department said jobless claims declined by 9,000 last week, despite August's decrease in payrolls, and Goldman Sachs Group Inc. reported a surprisingly large 79 percent profit rise in the third quarter. In August, stocks plunged and credit markets tightened up due largely to housing market troubles.

But Bear Stearns & Cos. didn't weather the market turmoil as well, and suffered a larger-than-anticipated 62 percent profit drop. Electronics retailer Circuit City Stores Inc. also posted a big quarterly loss that troubled Wall Street, sending its shares tumbling. Meanwhile, the euro fell to another record low against the euro and crude oil prices surged to a new all-time high above $83 a barrel.

The Dow fell 48.86, or 0.35 percent, to 13,766.70.

Broader stock indexes also declined. The Standard & Poor's 500 index fell 10.28, or 0.67 percent, to 1,518.75, and the technology-dominated Nasdaq composite index fell 12.19, or 0.46 percent, to 2,654.29.

The Russell 2000 index of smaller companies fell 7.64, or 0.93 percent, to 809.76.

Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange, where consolidated volume came to 2.96 billion shares, down from 3.82 billion on Wednesday.

Bonds plummeted, pushing the yield on the benchmark 10-year Treasury note up to 4.67 percent from 4.52 percent late Wednesday. Prices fell due to concerns that U.S. rate cuts will spur inflation and that the falling dollar might cause Saudi Arabia to unload their Treasury holdings.

Crude oil prices rose further into record territory on the New York Mercantile Exchange to settle at $83.32 a barrel. Gold also extended its recent streak.

Fed Chairman Ben Bernan-ke's testimony yesterday about the mortgage and credit markets before the House Financial Services Committee offered few hints about the central bank's next move.

Bernanke said the credit crisis has created "significant market stress" and reassured the market that regulators are willing to step in to curb the fallout.

Wall Street is split over what the Fed will do when it meets again in October. Many predict a quarter-point rate decrease, but others expect the target fed funds rate to hold at 4.75 percent.