Stocks fell Wednesday as concerns about weak company profits prevented an enthusiastic response to a sharp improvement in the interest rate outlook at the Federal Reserve and the bond market.
The Dow Jones industrial average erased an early 47-point loss, but slid during the final two hours and finished 78.22 points lower at 8,971.70. The Dow lost 19 points Tuesday after gaining 265 points over the previous three sessions.
Asian stock markets sank as the U.S. dollar climbed to a new seven-year high against the yen, sparking fears that China would soon be forced to devalue its currency.
Hong Kong's main stock index fell 4.9%, and key market gauges lost 4.3% in Korea, 3.1% in Malaysia and Taiwan and 1.2% in Japan. The benchmark Thai index closed at a 10 1/2-year low, while the index in Singapore fell to its lowest level in 9 1/2 years.
Southeast Asian currencies also sank against the U.S. dollar.
Many investors were reluctant to bid up stocks and currencies ahead of a meeting of finance officials from the Group of Seven industrialized nations scheduled to open in Paris later Wednesday.
The dollar ended at 141.43 Japanese yen, up from 141.35 Tuesday.
"No one knows what will come out of the G-7 deputies meeting and people are nervous," said Yasuhisa Morikuni, assistant vice president at Bank of America.
The unease stems from concern that the yen could fall further against the dollar if officials attending the G-7 meeting do not issue a statement pledging to support the battered Japanese currency.
Additional nervousness about the world's willingness to stabilize the Asian economic crisis followed comments by South Korean President Kim Dae Jung, who addressed a joint session of Congress, calling for approval of fresh funds for the International Monetary Fund so it can continue to provide "critical" support for Korea and other troubled economies.
Likening the IMF to the U.S. Federal Reserve, Kim said that with the IMF's aid, as a "lender of last resort," Korea is "aggressively and successfully promoting restructuring of our economy to the level of other advanced countries."
Congress has not agreed to more funding for the international agency, and the IMF bill remains in limbo as some legislators question its usefulness or want to attach limitations related to abortion funding.
The IMF's coffers were drained by the international financial rescues it organized last year for South Korea, Indonesia and Thailand. South Korea alone received half, with a $57-billion bailout put together by the IMF. The organization has approximately $12 billion to $15 billion in available resources and could call on another $23-billion line of credit from major industrial nations, and $36 billion in gold reserves.
Broad-market indicators followed the Down downward toward the close even though a rally in the bond market sent long-term interest rates falling to approach an all-time low.
A weak technology sector, hurt by profit warnings from several companies, weighed on Nasdaq, which crumbled 27.51 points to end at 1,773.25.
Bonds started the day strong as money flooded in from Asia's financial markets, which took another pounding Wednesday, and extended those gains after some reassuring comments by Fed Chairman Alan Greenspan.
Yields on the benchmark 30-year Treasury bond slid to 5.70% from 5.78% Tuesday. The bond yield ended at that level Jan. 12.
Addressing a joint congressional panel, Greenspan said the inflation-wary Fed sees no immediate need to slow the economy with an increase in the central bank's lending rates.
"Everything Greenspan said was really everything we wanted to hear," said John Lynch, director of investment strategy at Interstate/Johnson Lane in Charlotte, N.C.
Greenspan also said he expected the U.S. economy would slow in the coming months, but that it was hard to gauge how much of an effect the economic crisis in Asia will have.
Some analysts said Greenspan's remarks were predictable since a boost in U.S. interest rates would exacerbate the tumult in Asia by drawing more investment capital away from that region. Furthermore, it remains unclear how much the Asian crisis is eroding profits at U.S. companies.
Most prominent among Wednesday's big decliners were heavy industrial companies whose fortunes are closely tied to the domestic and global economy.
Notably, 3M plunged $4.50 to close at $88.38 as the Dow's biggest loser after Morgan Stanley Dean Witter downgraded the stock, citing the company's considerable exposure to Southeast Asia.
"The market remains very fearful of earnings prospects, and in my opinion, for good reason. Earnings estimates for the third and fourth quarters are grossly inflated," said Peter Anderson, chief investment strategist at American Express Financial Advisors in Minneapolis.
Another drag on the market was a drop in tobacco stocks after news of a jury decision against Brown & Williamson.
Philip Morris Cos., one of the Dow components, fell $1.88 to close at $38.38. B.A.T. Industries, parent of Brown & Williamson, lost 63 cents to $19.56, and RJR Nabisco Holdings Corp. sank 88 cents to $26.
Elsewhere among the Dow 30, United Technologies fell $3.69 to $87.25 and Caterpillar fell $2.44 to $53.88, offsetting sizable gains from Merck, up $3.88 to $126.88; AT&T; rose $2 to $63.38, and Walt Disney was up $1.81 to $118.31.
The Standard & Poor's 500 fell 6.13 points to 1,112.28. The NYSE composite index fell 3.13 points to 574.37, and the American Stock Exchange composite index fell 7.22 points to 706.85.
The Russell 2,000 index of smaller companies fell 5.66 points to 451.08.
The major factor concerning investors recently has been the continuing slide of the Japanese yen. The dollar moved as high as 141.57 yen during trading in Japan, its highest level since June 1991. Tokyo's benchmark 225-issue Nikkei stock average fell 190.91 points, or 1.23%, closing at 15,339.26.
The yen's fall has made Japanese exports cheaper abroad. Investors worry that a further drop in the yen will force Japan's neighbors, including China, to devalue their currencies to remain competitive.
Market Roundup, D10