Stocks dive on worries of U.S. recession


Wall Street struggled to steady itself today, climbing back from an early plunge after the Federal Reserve cut interest rates in hopes of restoring stability to a faltering U.S. economy. The Dow Jones industrials, down 465 points at the start of the session, recovered to a loss of about 175 points.

The U.S. markets joined a global selloff amid growing fears that a recession in the United States could send economies around the world into a downturn. Though stocks regained ground as investors digested the Fed's move to cut the key interest rate by 0.75 percentage point and bargain-hunters entered the market, trading remained volatile and the major indexes fluctuated sharply, at times approaching the break-even point before heading down again.

Analysts saw little, if any, optimism driving the market, particularly since today's drop followed months of losses on Wall Street.

"Sometimes market bottoms are not made by specific events, but by exhaustion," said Peter Boockvar, equity strategist at Miller Tabak.

Stocks have plunged, with frequent triple-digit drops in the Dow, as investors took in a stream of weak economic data and reports that financial firms had lost billions of dollars due to the housing and mortgage crisis. With the housing and credit markets unlikely to turn around soon, and more disappointing economic news expected, investors were likely to keep shying away from stocks.

No one expected an interest rate cut alone to erase investors' concerns. For the market to truly gain a foothold, investors need to see strong economic data in the coming weeks and solid earnings reports and forecasts this week from big multinational companies like Microsoft Corp., ATT Inc., Caterpillar Inc. and Honeywell International Inc.

"If that doesn't happen, then all this is a short-term bottom before a resumption of selling," Boockvar said.

U.S. bonds were mixed, with investors seeking safer investments as stocks declined. The price of oil, meanwhile, fell amid expectations that a downturn would depress demand for energy.

The Fed lowered the target federal funds rate, or the interest banks charge one another for overnight loans, to 3.50 percent and the discount rate, the interest the Fed charges banks directly, to 4 percent. The decision came a week before the central bank's regularly scheduled meeting, a sign that it acknowledges that the world's financial situation is serious.

It can take months for an interest rate cut to work its way through the economy. In the short term, it makes borrowing cheaper, but the billions of dollars in failed mortgages over the past year have made lenders wary of writing loans to almost anyone &

consumers or corporations. And the heavy losses that banks and other financial institutions have suffered have raised questions about their stability.

Some analysts were waiting to see what else the Fed would do.

"It's just not enough yet. The Fed has got to do a lot more than just lower rates. They've got to inject more liquidity," said Harry Clark, president of Clark Capital Management in Philadelphia.

The Dow was down 178.18, or 1.47 percent, at 11,921.12. The Dow was last below 12,000 in March 2007.

The broader Standard Poor's 500 index was off 22.19, or 1.67 percent, at 1,303.00, while the Nasdaq composite index fell 54.50, or 2.33 percent, to 2,285.52.

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