Stocks hit 3-year lows; `people just got scared'

Fears of recession and war led Wall Street to its third big sell-off in four days Thursday, sending major stock indexes down more than 10 percent since last week's terrorist attacks as they spiraled to fresh three-year lows.

And unlike Wednesday, when a sharp downturn was moderated by a rally in the last hour, Thursday's downward tumble only worsened at the end of the session--and, experts said, Friday may well bring still more volatility.

"People just got scared--at this point, I'm not sure it's completely rational," said Mark Sellers, editor of the Morningstar Stock Investor newsletter, based in Chicago.

The Dow Jones industrial average shed 382.92 points, or 4.4 percent, to close at 8376.21, its first close below 8400 since October 1998. This brings its loss for the week to 1,229 points, or nearly 13 percent. Thursday's drop was the Dow's seventh-biggest single-day loss.

Unless it rallies sharply Friday, the blue-chip barometer will chalk up its biggest one-week point drop ever, surpassing the 821.21-point fall in the week ending March 16. The weekly fall also stands to be one of the biggest percentage drops.

The broader market fell, too, with the benchmark Standard & Poor's 500 index dropping 31.56, or 3.1 percent, to 984.54, its first close below 1000 since October 1998. The Nasdaq composite index fell 56.87, or 3.7 percent, to 1470.93.

Throughout the day, "you had the gloom, the fear of war ... and the idea that the economy was coming, if not to a halt, at least to a big slowdown," said David Dreman, chairman of Dreman Value Management in Jersey City, N.J.

Adding to the pressure were institutional investors selling to meet mutual fund share redemptions and margin calls, as well as to position themselves for the expiration of stock index futures, stock index options and stock options on Friday, a quarterly event called triple witching, noted Erik Gustafson, senior portfolio manager at Stein Roe & Farnham in Chicago.

"There was no catalyst to drive the markets higher, and the selling kept on consistently throughout the day," he said.

Even an attempt at reassurance by Federal Reserve Chairman Alan Greenspan failed to bolster investors. While acknowledging the attacks harmed economic activity, Greenspan told Congress he was confident the U.S. would recover and prosper.

But bad news reigned.

The market was rattled by a government report that housing starts fell in August and by more profit warnings.

The mood was not helped by reports that significant shareholders of Walt Disney Co. sold 135 million shares, with the company buying back 50 million and Goldman Sachs buying the rest. Billionaire investor Sid Bass and the Bass family acknowledged selling the shares to raise cash, but downplayed reports that the sale was prompted by a margin call.

Investors also were discouraged that the airline bailout package under discussion in Congress is not as big as the airlines had asked for, said Don Cassidy, senior research analyst for Lipper, a financial research service based in New York.

The unrelenting selling of stocks in the past 18 months has led to investor losses of $6.6 trillion since stocks peaked in March 2000. This is equivalent roughly to the combined gross domestic products of Japan, Germany and France.

About $1.2 trillion in investor wealth has evaporated this week, raising fears that consumer spending will drop, adding pressure to a weak economy.

Selling was broad-based Thursday, and once again, air travel-related stocks were hit.

Shares of UAL Corp., Elk Grove Township-based parent of United Airlines, fell by $1.53, or 8.2 percent, to $17.23. Its price has sunk 44 percent this week.

Chicago-based Boeing Co. shares fell $2.85, or 8.7 percent, to $29.76. For the week, shares have lost 31.5 percent.

AAR Corp., a Wood Dale-based aircraft parts and service company, fell $1.40, or 15.3 percent, to $7.75. Its share price has lost 51.5 percent since last week's terrorist attacks.

In other sectors, Chicago-based media company Tribune Co., which issued a profit warning after the close Wednesday, dropped $3.28, or 9.2 percent, to $32.40, bringing its losses to nearly 17 percent for the week.

Glenview-based Illinois Tool Works, which reported flat operating revenue for the quarter ended Aug. 31, fell $1.70, or 3.1 percent, to $52.30.