Nasdaq meltdown
caps dismal quarter

Delayed reaction to rate cut
a reminder of market's woes

---

By Lisa Singhania
Associated Press

NEW YORK >> A technician's error threw the Nasdaq stock market into disarray yesterday, forcing investors to use alternative systems and delaying compilation of Wall Street's major indexes.

The computerized market that usually closes at 4 p.m. EDT extended trading for an hour and canceled its usual after-hours session. The extension was the first in the market's 30-year history.

Officials hoped to have two key trading systems working by Monday.

The drama ended a fitful week and a dismal quarter for Wall Street.

An interest rate cut by the Federal Reserve is usually cause for celebration among investors. But they had to sleep on it before rallying the day after the Fed's sixth such move of the year.

Analysts weren't surprised by the initially cautious response to the rate cut Wednesday; the market has become increasingly convinced that better corporate earnings, not Fed policy, will presage any business turnaround.

"We still haven't seen the effect of the initial rate cuts, so it's harder to get excited about the sixth one," said Rafael Tamargo, director of equity research at Wilmington Trust.

The rate reduction also was widely anticipated, meaning investors had been buying and selling on lower rates ahead of the official announcement. And the cut was smaller than the market had wanted -- a quarter of a percentage point, rather than the half-point many money managers predicted.

What changed?

"I think people thought about it overnight and realized it didn't matter" that the cut was smaller than expected, Tamargo said. "What mattered was that the Fed had made the cut and indicated it would cut again if necessary."

Still, the market's reaction illustrates one of the frustrating truths about Wall Street in an economic downturn.

Although the Fed's interest rate cuts have provided a buffer against strong selloffs by reassuring investors that help is on the way, the reductions haven't provided a catalyst for a significant, sustainable rally.

Instead, with more than 600 corporate warnings this quarter, the market has become even more hesitant to commit to stocks of companies that can't say their performance will soon improve.

"What we've seen this week is a market that had become oversold and negative, so people started buying. They'll sell when the market becomes too high," said Richard Cripps, chief market strategist at Legg Mason in Baltimore.

Don't expect the time of year to help either. Summer is traditionally a slower time for Wall Street and business deals. Trading volumes tend to decrease as the nation goes on vacation.

All of these factors played a role this past week.

So did news that a federal appeals court had reversed a lower court ruling that had ordered the breakup of Microsoft intensified the positive sentiment.

The end of the quarter was still another contributor. With the second-quarter ending yesterday, professional money manager spent the early part of the week selling and adjusting their portfolios. As the week wore on, that pressure decreased, allowing stocks to advance somewhat.

New earnings warnings yesterday dampened investors' enthusiasm, although the indexes managed moderate gains.

The Nasdaq problems delayed final stock prices and meant the major indexes, including the Dow Jones industrial average, the Nasdaq composite and the Standard & Poor's 500, could not be immediately compiled.

Officials blamed an unspecified error by a WorldCom Inc. technician.

WorldCom said it appeared the service interruption resulted from testing of a development system for Nasdaq.

The impact of the disruption was difficult to assess. But the glitches could have impeded "window dressing," an end-of-quarter process in which mutual fund managers sell losers and quickly pick up winners.

For the week, the Dow lost 102.19, or 1 percent, after dropping 63.81 to 10,502.40 yesterday.

The Nasdaq gained 125.70, or 6.2 percent, for the week, following a 35.08-point gain to 2,160.54 yesterday.

The S&P 500 index was essentially unchanged for the week, slipping 0.97, or 0.1 percent. It dipped 1.82 yesterday to 1,224.38.

The Russell 2000, which measures the performance of smaller company stocks, rose 23.99 or 4.9 percent for the week after gaining 9.65 yesterday and closing at 512.64.