Dow Falls Despite Rate Cut by Fed

The stock market struggled to find a direction Tuesday despite the Federal Reserve’s 11th interest rate cut of the year and a bullish forecast from Nokia.

Tech stocks managed a small gain, but the broader market fell back when a disappointing outlook from drug maker Merck late in the session reminded investors that the timing of an economic turnaround is still uncertain. Analysts said the Fed’s decision to lower rates, though welcome, was widely expected and failed to inspire sustained buying.

The Dow Jones industrial average closed down 33.08 points, or 0.3%, at 9,888.37. It was the fourth straight decline for the index, which had risen as much as 93 points during the session on news of the Fed cut.

Broader stock indicators were mixed. The Standard & Poor’s 500 index lost 3.17 points, or 0.3%, to 1,136.76. The technology-focused Nasdaq composite index rose 9.81 points, or 0.5%, to 2,001.93.

In its statement announcing the rate cut, the Fed indicated it saw some signs of “preliminary and tentative” stabilization in the U.S. economy, but said it remained focused on the risk of more economic problems. Although rates are at a 40-year low, the statement’s tone suggested more cuts are possible.

“The markets got the rate cut they wanted and the Fed said they were starting to see some evidence the economy was firming up,” said Todd Clark, co-head of trading at WR Hambrecht. “That was enough for people to get encouraged.”

But Wall Street’s good feeling and the solid gains immediately after the rate cut dissipated with Merck’s forecast of no growth in earnings per share next year, mainly due to expiration of the patent on its key ulcer drug, Prilosec. The stock, a Dow member, closed down $6.29, or 9.3%, at $60.70.

“When you have a drug company come out and say that there’s zero growth, that’s fairly dramatic. These are non-cyclical companies that are usually pretty stable,” said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.

Manufacturing and industrial stocks were mixed. General Motors fell $1.69 to $48.65, while Caterpillar rose 49 cents to $50.50.

Tech stocks fared a little better because of an upbeat forecast from Nokia. The world’s biggest cell phone maker rose $1.71 to $25.50 after saying it expects sales to rise 20% during the fourth quarter. It is the latest technology company to forecast stabilizing or improving business. Last week, Cisco Systems and Oracle made similar announcements.

Analysts said the market’s recent losses aren’t cause for concern, given the extent of the rally. The Dow is up more than 20% from the 2001 low it set Sept. 21; the Nasdaq has gained about 40%.

Still, there have been concerns that the gains are premature and that there might not be enough good earnings or economic news to sustain the upward trend in the short term. The Dow is back below 10,000 after it briefly crossed that milestone last week for the first time since before Sept. 11.

“Investors, for the near term, are cautious. We’ve had a big move in the market and there is a need for consolidation,” Hyman said. “The expectations rally is over. We need to start getting consistent stories in terms of earnings stabilization and potential growth.”

Advancing issues and decliners were about even on the New York Stock Exchange, while winners led losers by 7 to 6 on Nasdaq. Trading volume was moderate.

Among Tuesday’s highlights:

* Bond yields fell on news of the Fed rate cut. The yield on the benchmark 10-year Treasury note slipped to 5.05% from 5.10% and the yield on the two-year T-note fell to 2.97% from 3.04%.

* Aramark shares rose 10% after the company, one of the largest food vendors to entertainment arenas, raised $690 million in its initial public offering. Aramark shares gained $2.40 to $25.40. The firm’s 30 million Class B shares were priced Monday night at $23 each, at the top of the planned $20 to $23 price range. The shares, which rose as high as $26.25 on Tuesday, trade on the New York Stock Exchange under the symbol RMK.