Rate cut disappoints
Wall Street

Continued earnings weakness
and a smaller than hoped interest
rate cut send stocks lower

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By Alan Clendenning
Associated Press

NEW YORK >> Blue chips fell today after the Federal Reserve delivered a smaller interest rate cut than Wall Street wanted.

The Fed announced in mid-afternoon it was lowering short-term rates by 0.25 percentage point, half of what the market felt was necessary to restart the economy. It was the sixth cut this year.

The Dow Jones industrial average ended today down 37.30 at 10,435.18, according to preliminary calculations. The Dow was up about 25 before the Fed's announcement.

The broader market finished mixed. The Nasdaq composite index eked out a modest gain, up 10.13 at 2,074.75, essentially unchanged from where it stood prior to the Fed's move. The Standard & Poor's 500 index fell 5.69 to 1,211.07.

Advancing issues outnumbered decliners more than 3 to 2 on the New York Stock Exchange, with 1,809 rising and 1,288 falling and 201 unchanged. Volume was 1.3 billion shares, compared with 1.19 billion on Tuesday.

The NYSE composite index fell 2.82 to 616.00 and the American Stock Exchange composite index fell 3.06 to 903.31.

Smaller stocks fared better today as the Russell 2000 index rose 4.76 to 495.58. Analysts say smaller companies benefit more from lower interest rates, because they borrow more money and at higher costs.

The price of the Treasury's 30-year note rose to 96 13/32. Its yield fell 3 basis points to 5.62. The price of 10-year note fell to 98 6/32, and it's yield rose 2 basis points to 5.24.

Investors have been anxiously awaiting signs that the five prior reductions -- each 0.5 percentage point -- have helped business pick up. But so far, corporate profit warnings, topping 600 so far this quarter, have indicated business remains weak in many sectors.

Analysts did not expect a rally to follow this latest rate cut, regardless of its size.

"I think the market is looking for real fundamental guideposts for true traction for a turnaround," said Philip S. Dow, managing director of equity strategy at Dain Rauscher Wessels in Minneapolis.

Dow said that evidence would include positive signs about earnings, companies announcing they are hiring or opening new plants, or encouraging government reports on the state of the economy.

"Those just aren't coming," he said.

However, analysts also said it typically takes six to nine months after the Fed starts lowering rates for the economy and business to benefit. The Fed made its first cuts in January.

"We think that the second quarter will prove to be the slowest quarter, and the third quarter will be the rebound, and by the fourth quarter growth will have resumed quite nicely," said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co.

Aside from the rate cuts, Hill said, the economy has other factors in its favor, including tax refunds due to be mailed to Americans in the third quarter, which are expected to boost consumer spending.

Among today's biggest losers was CVS, which plunged $7.59, or 17 percent, to $36.51. The nation's second-largest drugstore operator warned that its earnings for the second quarter and for the year will be lower than expected because weak sales.

But most of the market's gains and losses were more moderate.

Lucent slipped 13 cents to $5.87 after The Wall Street Journal reported the company might lay off an additional 10,000 workers. General Mills rose 50 cents to $42.80 after the maker of Wheaties, Cheerios and Chex reported earnings that met analysts' expectations.

Japan's Nikkei stock ended down 1.15 percent. In Europe, Germany's DAX index slipped 0.3 percent and Britain's FT-SE 100 rose 0.9 percent.