[NYTr] Booming Economy: Stocks Fall As Fed Decision Looms

[All the News That Doesn't Fit]

AP - Sep 17, 1007
http://hosted.ap.org/dynamic/stories/W/WALL_STREET?SITE=NCKIN&SECTION=HOME&TEMPLATE=DEFAULT

Stocks Fall As Fed Decision Looms

By MADLEN READ
AP Business Writer

NEW YORK (AP) -- Stocks fell moderately Monday as Wall Street
anxiously awaited the Federal Reserve's impending decision on interest
rates.

The market is betting on a rate cut from the Fed when the central bank
meets Tuesday, but investors are not completely sure what it will do
and what it will say in its accompanying economic statement.
Furthermore, with the major brokerages' third-quarter results yet to be
released, investors are uncertain about how badly the summer's stock
downturn, souring home loans, and credit squeeze hit the banking
industry.

Adding to the uneasiness, Northern Rock PLC, Britain's fifth-largest
mortgage lender, saw its stock plunge and customers withdraw billions
of dollars after it issued a profit warning Friday and drew on
emergency funds from the Bank of England. That gave U.S. investors an
added impetus to pare their stock holdings, particularly in the
financial sector.

Talk from former Fed Chairman Alan Greenspan of the possibility of a
recession amid high inflationary pressures also elevated Wall Street's
jitters, as did job cuts at Merrill Lynch & Co.'s First Franklin
Financial Corp.

It's possible the Fed won't go through with a rate cut at all if it
believes the economy is still growing moderately and that inflation
remains a threat, but most investors expect the Fed to cut the bench
mark federal funds rate by at least a quarter-point. And because
negative economic data have trickled in over the last couple weeks -
such as a decrease of 4,000 jobs in August and weaker-than-expected
retail sales - some anticipate a half-point rate cut.

"A quarter-point is going to be disappointing. It's already priced in,"
said Ryan Detrick, senior technical strategist at Schaeffer's
Investment Research. But the Fed probably won't want to lower rates by
more than that, he said, and the central bank may not indicate in its
statement that more reductions are in the offing.

"The big issue is gold and oil have been spiking higher, which people
could argue is inflationary, but economic data has been weak. The Fed's
in a tough place." Higher interest rates prevent costs from rising;
lower rates fuel growth but also tend to accelerate inflation.

According to preliminary calculations, the Dow Jones industrial average
fell 39.10, or 0.29 percent, to 13,403.42.

Broader stock indicators showed somewhat steeper losses. The Standard &
Poor's 500 index fell 7.60, or 0.51 percent, to 1,476.65, and the
Nasdaq composite index lost 20.52, or 0.79 percent, to 2,581.66. The
Russell 2000 index, which tracks small company stocks, fell 7.68, or
0.98 percent, to 775.81.

Bonds rose modestly, pushing the yield on the 10-year Treasury note
down to 4.47 percent from 4.48 percent late Friday.

Volume on the New York Stock Exchange was among the lightest of any day
this year, indicating that many market participants were staying on the
sidelines ahead of the Fed's decision. Some 1.11 billion shares were
traded, down from 1.2 billion on Friday.

Declining issues outnumbered advancers by more than 2 to 1 on the NYSE.

Last week, stocks saw sizable gains, due largely to high expectations
of a rate cut. The Dow ended up 2.51 percent, the Standard & Poor's 500
index rose 2.11 percent, and the Nasdaq composite index rose 1.42
percent. The Dow is just 4 percent below its all-time high of
14,000.41, reached in July before fears escalated about bad home loans
and excessive leveraged debt.

The prospect of a recession has been keeping the markets volatile.

Greenspan said in an interview with NBC before the markets opened
Monday that the risk of a recession is higher than it was at the
beginning of the year, but not by much.

Meanwhile, U.S. Treasury Secretary Henry Paulson said in Paris that
regulators should not rush to impose new rules on the market because of
the recent tightening in credit.

"There's tremendous growth going on in many parts of our world economy,
and that's driving a lot of business here in the U.S.," said Rob Lutts,
chief investment officer of Cabot Money Management, noting that the
markets are very focused on the U.S. housing market right now. "I'm not
going to say let's not worry, but let's put it in perspective."

The dollar rose versus the pound and euro but fell against the yen.
Gold jumped.

Crude oil prices rose $1.47 to settle at a record $80.57 per barrel on
the New York Mercantile Exchange. Crude closed over $80 for the first
time last week; oil futures also set a trading record Monday, moving as
high as $80.70.

In Europe, Britain's FTSE 100 fell 1.69 percent, Germany's DAX index
fell 0.24 percent, and France's CAC-40 fell 1.80 percent.

Japanese markets were closed Monday for a holiday. China's volatile
Shanghai Composite Index rose 2.1 percent to a record, but most Asian
stocks fell. Hong Kong's Hang Seng Index declined 1.20 percent.

Later in the week the major investment banks - Bear Stearns Cos.,
Lehman Brothers, Morgan Stanley and Goldman Sachs Group Inc. - release
their fiscal third-quarter results. On Monday, Bear Stearns fell $1.81
to $115.38; Lehman fell 88 cents to $58.62; Morgan Stanley fell $1.20
to $64.91; and Goldman fell $2.98 to $187.61.

Merrill fell $1.83, or 2.5 percent, to $72.82, after saying it was
eliminating an undisclosed number of jobs.

© 2007 The Associated Press.