Stocks open slightly lower ahead of Fed meeting

Associated Press

A recurrence of investors' anxiety about the economy gave Wall Street its biggest loss in five weeks, though in light trading.

The major indexes fell more than 1% Tuesday as some investors feared that the market's steep gains in the last month could unravel if the economy doesn't show more signs of strengthening.

Warnings about the health of banks and uneasiness ahead of the Federal Reserve's post-meeting statement today led some market players to dump financial stocks and buy government bonds.

Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy was likely to be gradual.

The Dow Jones industrial average fell 96.50 points, or 1%, to 9,241.45, the fourth decline in the last five sessions.

The broader Standard & Poor's 500 index lost 12.75 points, or 1.3%, to 994.35.

It was the biggest drop for both the Dow and the S&P; 500 index since July 7.

The Nasdaq composite slid 22.51 points, or 1.1%, to 1,969.73.

About three stocks fell for every one that rose on the New York Stock Exchange, the most negative market breadth since July 7.

Major indexes had reached 2009 highs Friday after the government reported that net job losses in July were the lowest since last August. The report added to other evidence that the economy is bottoming.

But with the sharp gains in stocks since mid-July, many experts have been warning that the market was ripe for a pullback. The S&P; 500 was up nearly 15% from July 10 to Friday, when it hit 1,010.48.

Negative sentiment was stoked Tuesday by analyst Richard Bove of Rochdale Securities, who predicted that bank earnings wouldn't improve in the second half of the year and that many companies would post losses.

Financial shares led the market lower. Bank of America fell 83 cents to $15.85, American International Group dropped $3.78 to $24.92, Travelers Cos. sank $1.49 to $44.93, and Wells Fargo lost $1.75 to $26.89.

"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments.

Some investors also stepped back ahead of the conclusion of Fed policymakers' meeting today. The central bank is expected to leave its benchmark short-term interest rate unchanged, but investors are anxious to hear what the Fed has to stay about prospects for the economy.

With stocks falling, Treasury bonds attracted money. The government sold $37 billion of three-year notes at a yield of 1.78%, slightly below expectations. Demand was strong.

But the Treasury was expected to face a bigger test selling $23 billion in 10-year notes today and $15 billion of 30-year bonds on Thursday as it continues to run huge budget deficits.

The yield on the existing 10-year T-note fell to 3.69% from 3.77% on Monday.

In other market highlights:

* The Chicago Board Options Exchange's Volatility Index climbed in a sign of investors' nervousness. The VIX, also known as the market's fear index, rose 4% to 25.99, its highest level in a month. It is down 35% in 2009. The VIX hit a record 89.5 in October at the height of the financial crisis.

* Bond insurer MBIA tumbled 78 cents to $5.39 after J.P. Morgan Securities cut its rating on the stock over concerns the company could still face steep losses from bad debt.

* Crude oil fell $1.15 to settle at $69.45 a barrel on the New York Mercantile Exchange.

* The dollar was mixed against other major currencies, while gold prices edged up.

* Overseas, Britain's FTSE-100 fell 1.1%, Germany's DAX index tumbled 2.4%, and France's CAC-40 dropped 1.4%. Japan's Nikkei stock average rose 0.6%.

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