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Dow dives on barrage of bad news

Times Staff Writer

Wall Street’s gloom over the economy thickened on Tuesday, and not even rumors of an emergency interest rate cut by the Federal Reserve were enough to stem the selling.

On a day when almost nothing went right for stock market bulls, the Dow Jones industrial average sank 277.04 points, or 2.2%, to 12,501.11, its lowest finish since the current sell-off began last summer.

A dismal report on retail sales last month, a massive loss at banking giant Citigroup Inc. and a report that Boeing Co. was falling further behind on its new jetliner fueled a decline that began at the opening bell and defied several attempts by traders to spark a rebound.

There was more bad news after regular trading ended, as computer chip leader Intel Corp. reported a 51% jump in quarterly profit but sounded cautious in its outlook.

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Foreign markets, which many Americans have favored over domestic shares in recent years, also were dragged sharply lower for the day as investors feared that U.S. economic woes would spread overseas.

The government’s report that retail sales last month fell 0.4% was worse than expected and deepened concerns that consumers were spent-out, which could make a recession a fait accompli.

A recession “has either started or is about to,” said Christopher Low, an economist at investment firm FTN Financial in New York.

Many market pros say recent economic data justify emergency cuts in short-term interest rates by the Fed. There were rumblings on Wall Street on Tuesday that policymakers would slash their benchmark rate, now 4.25%, by a quarter- to a half-percentage-point before their scheduled meeting on Jan. 29-30.

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Investors’ heavy buying of Treasury securities, which drove yields on the bonds to their lowest levels in at least three years, signaled expectations for hefty rate cuts, said Tom Di Galoma, a bond trader at Jefferies & Co. in New York.

“The market is pushing the Fed” to cut, he said.

The yield on the bellwether 10-year Treasury note sank to 3.68%, down from 3.77% on Monday and the lowest since mid-2003 -- when the Fed’s key rate was a mere 1%.

The six-month T-bill yield eased to 3.02%, down from 3.04% on Monday and the lowest since 2005.

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Fed Chairman Ben S. Bernanke on Thursday said the central bank would take “substantive” action to help bolster the economy.

But his words have failed to halt the stock market’s slide. Declining issues outnumbered winners by nearly 3 to 1 on Tuesday in active trading.

The Standard & Poor’s 500 index of big-name stocks fell 35.30 points, or 2.5%, to 1,380.95, bringing its loss for the first 10 trading sessions to 6% -- the worst start to any year since 1978, according to S&P.;

The technology-dominated Nasdaq composite has fared worse. It fell 60.71 points, or 2.4%, to 2,417.59 on Tuesday and is down 8.8% year to date.

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In the financial sector, Citigroup’s announcement of a nearly $10-billion quarterly loss and a 41% dividend cut triggered renewed selling of battered bank shares. Citigroup’s stock dived $2.12, or 7.3%, to $26.94, a five-year low.

The company’s net loss stemmed mostly from another huge write-off tied to troubled mortgage securities. But its results also added to evidence that consumers’ debt problems went beyond mortgages -- compounding worries about the effect on the economy.

Citigroup reported a net charge of nearly $3.9 billion to boost its reserves for losses on consumer loans, including credit cards and auto loans. That slashed net income for its consumer banking division to $756 million, a 71% drop from a year earlier.

Many investors had been expecting that earnings at industrial, technology and other firms outside the financial sector would hold up well in 2008, offsetting continuing losses at banks and brokerages.

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But those hopes have dimmed in recent weeks. Boeing’s shares sank $3.81, or 4.7%, to $77.86 on Tuesday after the Wall Street Journal said the company would soon announce further delays in its new 787 Dreamliner because of problems with parts suppliers.

Intel’s shares plummeted $3.24 to $19.45 in after-hours trading after some of its executives sounded cautious about 2008. The firm’s results for the fourth quarter also came in modestly below expectations.

Still, some market pros say it’s too early to throw in the towel on fourth-quarter earnings reports, with most companies yet to issue their results.

The market had rallied on Monday after IBM previewed its earnings, saying they would be up 24% from a year earlier, thanks to robust foreign sales.

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“Let’s see how earnings season plays out,” said Linda Duessel, market strategist at Federated Investment Management in Pittsburgh.

Among the day’s market highlights:

* Foreign markets were broadly lower as investors overseas fretted that economic woes here could slam foreign economies.

Germany’s DAX index slumped 2.1% as an index of investor confidence in that country dropped to its lowest level in 15 years.

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The Spanish market dived 3.4% and Brazil’s main share index slid 3.7%.

However, the dollar’s renewed slide against many currencies this year has been a cushion for U.S. investors in some markets. The German market is down 6.2% in euros but is off 4.8% in dollars.

* Investors dumped financial shares even amid news that some of the industry’s giants, including Citigroup and Merrill Lynch, were getting substantial capital infusions from abroad. Merrill lost $2.96 to $53.01, JPMorgan Chase tumbled $2.19 to $39.17 and Goldman Sachs sank $8.36 to $193.29.

* Builders’ shares suffered steep losses, with KB Home down $1.21 to $17 and Ryland Group down $1.66 to $23.39.

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* Expectations of slowing economic growth drove crude oil prices down. Near-term futures fell $2.30 to $91.90 a barrel in New York. Gold also pulled back, but modestly, from its record high reached on Monday. Near-term futures were off 60 cents to $901 an ounce.

* Although most U.S. blue-chip market indexes are down between 10% and 15% from their 2007 record highs -- still in the range of a “correction” in a bull market -- indexes of smaller stocks are nearing declines of 20% from their highs, which many on Wall Street consider the threshold that marks a bear market.

The Russell 2,000 index dropped 2.1% to 697.43, leaving it down 18.5% from its all-time high reached in mid-July.

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tom.petruno@latimes.com


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