Dow dives 225
over economic worries

A weakening dollar is cited as
the catalyst for the blue-chip index's
worst fall in nearly four months

Star-Bulletin news services

NEW YORK -- Stocks fell sharply today, pulled lower by increasing concerns about the weakening dollar, the growing U.S. trade deficit and upcoming earnings reports.

The Dow Jones industrial average fell 225.43, fell 2 percent, to close at 10,598.47 after falling as much as 272.03 during the session. The Dow's decline was its biggest point drop since it fell 235.53 on May 27.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index fell 27.95, or 2 percent, to 1,307.58, and the Nasdaq composite index lost 65.05 points to 2,821.10, a 2.25 percent drop.

Decliners led advancers by a 10-to-3 margin on the New York Stock Exchange, with 680 up, 2,349 down and 491 unchanged. NYSE volume totaled 788.86 million shares vs. 570.43 million yesterday.

The NYSE composite index fell 11.11 to close at 600.99; the American Stock Exchange composite index dropped 7.87 to 784.50; and the Russell 2000 index of smaller companies fell 6.70 to 426.50.

Still, analysts said the selloff was a calm one, mostly growing out of the uncertainties raised by recent economic news.

"There's no panic selling," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee. "It has the feel of a market that was a little overextended, given the background of uncertainty."

Foremost in many investors' minds was the dollar's continuing slide against the yen. The U.S. currency was quoted below 105 yen today, down from 106 yen yesterday.

A weaker dollar can be inflationary, and possibly lead to higher interest rates in this country. It also attracts investors to Asian markets, and away from U.S. stocks, said Charles White, president and portfolio manager at Avatar Associates.

(However, a stronger yen is good for Hawaii's tourism industry because it means Japanese tourists have more buying power. Japanese tourists account for nearly one-third of the visitors to Hawaii.)

In this current U.S. economic climate, investors increasingly worry that the Federal Reserve will raise interest rates for a third time this year to combat inflation. The Fed's Open Market Committee meets in two weeks.

"The fear of another interest rate hike is clearly weighing heavily on the market for now," said Ned Riley, chief investment officer at BankBoston. He said that anxiety was keeping stocks trading within a specific range -- with the Dow shuttling between 10,500 and 11,300.

Still, Riley noted that although September is a historically bearish month for the market, stocks aren't far from their highs for the year.

U.S. government bonds, meanwhile, fell for a second day as the dollar's decline against the yen raised concern that foreign investors will sell their Treasury holdings to guard against further losses in the currency.

"If the dollar depreciates and people sell Treasuries to go elsewhere, that's going to cause yields to increase," said Alan Day, who helps invest more than $4 billion at Stratevest Group in Burlington, Vt. "I can see 6.25 percent yields pretty easily by the end of the year if the dollar doesn't turn around," compared with current 30-year yields of 6.09 percent.

Overseas, Japan's Nikkei stock average rose 2.03 percent. But Germany's DAX index closed down 1.29 percent, Britain's FTSE 100 fell 1.64 percent, and France's CAC-40 fell 1.44 percent.

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The Associated Press and Bloomberg News
contributed to this report.