Stocks decline despite rate cuts by central banks

The stock market moved in and out of positive territory Wednesday after a Federal Reserve interest rate cut before turning markedly lower late in the day. The Dow Jones industrials fell almost 190 points.

The Federal Reserve and other leading central banks cut rates in an effort to help global credit markets relax and get banks to lend more freely to businesses and consumers.

But interest rate changes take months to work their way through the economy, and some investors concluded that a rate cut wouldn’t address the reluctance of banks to lend.

The Dow slid 189.01 points, or 2%, to 9,258.10. The Standard & Poor’s 500 index dropped 11.29 points, or 1.1%, to 984.94, and the Nasdaq fell 14.55, or 0.8%, to 1,740.33.

The Russell 2,000 index of smaller companies fell 12.38 points, or 2.2%, to 546.57.

European stock markets rose after the rate cuts and Britain’s move to inject capital into its banks. But for the day, key stock indexes fell 5.2% in London, 5.9% in Frankfurt and 6.3% in Paris.

Before the central banks acted, Asian stocks plunged in reaction to the persistent gloom on Wall Street and a growing realization that the global credit crunch and economic downturn will hammer Asia’s exporters.

Japan’s Nikkei 225 index plunged 9.4%, its biggest one-day drop since the 1987 market crash, to the lowest level in five years. The index is down 18% in the last five sessions. Shares of Sony, Sharp and Toyota Motor all fell more than 10%.

“It doesn’t matter how good of a company Toyota is,” said Kirby Daley, a strategist in Hong Kong for brokerage Newedge Group. “It’s not going to sell as many cars.”

Key indexes skidded 5% or more in Australia, South Korea, Taiwan and Singapore. Shares fell more than 3% in Hong Kong and Shanghai.

After Indonesia’s main stock index sank 10%, trading was halted for the second time this week.

With their precipitous drop of the last few weeks, U.S. stocks are approaching the magnitude of the losses they suffered in the bear market earlier this decade.

By the time the Dow reached its low of 7,286.27 on Oct. 9, 2002, it had fallen 38% from its January 2000 peak of 11,722.98.

The blue-chip index has fallen about 35% from its closing high of 14,164.53 reached one year ago today. This week, the Dow has lost 10%.

Demand for short-term Treasury securities remained high Wednesday as many investors were still willing to accept extremely low returns just to ensure their money was secure. The yield on the three-month Treasury bill fell to 0.61% from 0.77% late Tuesday.

But yields on longer-term government bonds rose. The 10-year T-note climbed to 3.64% from 3.51% late Tuesday.

In another sign of flight to safety, gold futures shot up $24.70 to $903.10 an ounce.