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Stocks Slip On Rate Cut Doubts, Housing Report

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The Associated Press

Published: September 6, 2007

NEW YORK - Stocks finished sharply lower Wednesday as a jittery Wall Street sold off on a report showing a large drop in pending home sales and read anecdotal data from the Federal Reserve's regional banks as offering little assurance that an interest rate cut is likely. The Dow Jones industrial average dropped more than 140 points.
Bond prices soared as investors again sought the safety of government debt, sending yields to multimonth lows. The yield on the 10-year Treasury note, which moves inversely to its price, fell to 4.47 percent, its weakest level since March 14 and down from 4.56 percent at Tuesday's close.

The National Association of Realtors said pending sales of existing homes fell in July to the lowest level in nearly six years. Though the report did support the argument for a rate cut, it also worried investors who are nervous about the housing market growing so weak that it will drag the economy into recession.
Beige Book Disappoints

The Fed's Beige Book, which describes economic conditions in regions across the country, said that while upheaval in the financial markets has made the housing slump worse, the overall economy has not been widely harmed. Wall Street appeared disappointed that the Beige Book's findings did not deliver a sure bet for a rate cut, which markets have been pining for.

'The markets are reacting to absolutely every bit of information which is coming along tick by tick,' said Walter Gerasimowicz, chairman and chief executive of Meditron Asset Management in New York, downplaying the market's initial pullback after release of the Beige Book as an overreaction. 'I'm happy to see that the underlying economy is still in fairly sound mode.'

The downcast mood on Wall Street on Wednesday ran counter to a somewhat more upbeat mood of recent sessions. The Dow Jones industrial average rose in three of the past four sessions, jumping 91 points Tuesday, as investors sought stocks that have been turned into bargains by declines.

On Wednesday, the Dow ended down 143.39, or 1.07 percent, at 13,305.47, after having fallen as much as 200 points in the session.

Broader stock indicators also lost ground. The Standard & Poor's 500 index fell 17.13, or 1.15 percent, to 1,472.29, and the Nasdaq composite index fell 24.29, or 0.92 percent, to 2,605.95.

Rate News Ripples From Abroad

Investors' concerns about spreading fallout from market turmoil also intensified after the European Central Bank said it would consider steps to curb euro money market upheaval. It was a sign the ECB might not lift its benchmark interest rate when it meets today; there had been speculation it would raise the rate to 4.25 percent.

In the United States, the Fed has held rates steady for more than a year in a bid to reduce inflation. Investors concerned about a stumbling housing market, rising mortgage defaults and tightening access to credit have been hoping the Fed will reduce its benchmark fed funds rate when it meets Sept. 18.

'It seems like every day you've got some news that subprime and some of the effects of the housing impact aren't quite so bad, and the next day you've got something that says it is worse than we thought in another area. I just think it's a continuation of the choppiness and ... worries that have been going on,' said Kent Croft, chief investment officer at Croft Leominster Investment Management in Baltimore.

Declining issues outnumbered advancers Wednesday by more than 3-to-1 on the New York Stock Exchange, where consolidated volume came to 2.93 billion shares, compared with 2.76 billion shares traded Tuesday.

The Russell 2000 index of smaller companies fell 10.23, or 1.28 percent, to 790.46.

Crude futures rose 65 cents to settle at $75.73 per barrel on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 1.60 percent. Britain's FTSE 100 closed down 1.66 percent, Germany's DAX index declined 1.73 percent and France's CAC-40 tumbled 2.14 percent.

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