UPDATE: Dow Finished Down 128
NEW YORK (AP) -- An unusual emergency interest rate cut by the Federal Reserve gave Wall Street a partial rebound Tuesday from a precipitious early decline — and perhaps the first steps toward a long-term recovery. The rest of the comeback, for the economy as well as the stock market, may depend on a turnaround in the battered housing market and renewed confidence among U.S. consumers.
The Dow Jones industrial average, down 465 points shortly after trading began, bounced around throughout the session before closing with a milder drop of 128.11, or 1.06 percent, at 11,971.19, according to preliminary calculations.
The U.S. markets had joined a global selloff amid growing fears that a U.S. recession could send economies around the world into a downturn. Though stocks recovered much of the ground they lost as investors digested the Fed's move to cut the key interest rate by 0.75 percentage point and as bargain-hunters entered the market, trading remained volatile.
"Sometimes market bottoms are not made by specific events, but by exhaustion," said Peter Boockvar, equity strategist at Miller Tabak. He said that for the market to truly gain a foothold, investors need to see strong earnings reports and economic data in the coming weeks.
"If that doesn't happen, then all this is a short-term bottom before a resumption of selling," Boockvar said.
The Dow was off about 95 points at the 12,003 level in late morning.
In mid-morning trading, the Dow, down 450 points in the first few minutes of trading, had recovered to the point where it was down 187.78, or 1.55 percent, at 11,911.52. However, the average fluctuated sharply, and trading was expected to remain volatile. The Dow was last below 12,000 in March 2007.
The broader Standard & Poor's 500 index was off 22.73, or 1.72 percent, at 1,302.46, while the Nasdaq composite index fell 53.78, or 2.30 percent, to 2,286.24.
It was the first time the Fed altered the target federal funds rate between scheduled meetings since the markets reopened after the Sept. 11, 2001 terrorist attacks. The cut was the biggest one-day rate move by the Fed since it lowered rates by a full percentage point in December 1991, when the country was trying to emerge from recession.
The Fed said in a statement that it took the steps to address a "weakening of the economic outlook" and "increasing downside risks to growth." The bank also said it will act in a timely way to address future risks.
"They seemed to react to the markets rather than anticipate the markets, but they did the right thing," said economist Edward Yardeni, who runs his own research firm.
It's been a black year so far for stocks. The S&P 500 index, the broadest measure of the stock market, has suffered its worst annual start ever, giving up about 13 percent in just three weeks. The Dow is down about 12 percent since the beginning of the year, and the Nasdaq is down approximately 15 percent.
Government bond prices surged as stocks fell and investors fled to safer securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.53 percent from 3.63 percent late Friday.
Crude oil prices tumbled below $89 a barrel on the New York Mercantile Exchange on the concern that a weak economy will dampen energy demand.
The prospect of a U.S. recession dragging down the global economy has infected markets around the world, which plunged on Monday — when Wall Street was closed for Martin Luther King Jr. Day.
In Asia on Tuesday, Japan's Nikkei stock average closed down 5.65 percent — its biggest percentage drop in nearly a decade. Hong Kong's Hang Seng index lost 8.65 percent a day after showing its biggest losses since the Sept. 11, 2001, attacks.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Updated Tuesday, Jan. 22, 2008 at 3:50 p.m. CST
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Updated Tuesday, Jan. 22, 2008 at 3:50 p.m. CST
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