- The Washington Times - Tuesday, August 6, 2002

NEW YORK (AP) Wall Street's hopes for a turnaround dimmed yesterday after another dose of disappointing economic news sent the Dow Jones Industrial Average down 270 points, their third straight triple-digit loss.
The selling, which followed the latest disappointing economic report, came after 11 weeks of heavy selling and further eroded the huge late-July rally that many investors had believed might be the beginning of a recovery. Analysts said that without any encouraging economic data, there was little reason to do much buying. Doubts about the banking sector also pressured stocks.
The Dow closed down 3.2 percent, at 8,044, for a three-session loss of 693 points. The sell-off pulled the index 192 points, or 2.3 percent, below the low of 8,236 it hit Sept. 21 after the terrorist attacks. The Dow last closed below that level a little over a week ago.
Broader stock indicators also fell. The Standard & Poor's 500 Index lost 29.6, or 3.4 percent, to 8355, and the Nasdaq Composite Index dropped 41.9, or 3.4 percent, to 1,206 a new five-year low. It last closed lower on April 21, 1997, when it stood at 1,204.
Yesterday's selling came after a report by the Institute for Supply Management that showed the U.S. service sector grew in July, but at a slower pace than many economists had predicted. The group's non-manufacturing index stood at 53.1 in July, after standing at 57.2 in June and 60.1 in May.
The news compounded a string of lackluster economic releases late last week including a weaker-than-expected gross domestic product, disappointing outlooks for business and manufacturing and flat unemployment figures that raised fears that the economy was slipping back into recession.
The International Monetary Fund said yesterday it expects to cut its U.S. economic growth forecasts as the plunging stock market raised a new threat to the recovery.
"While the outlook is still broadly favorable, the downside risks have intensified," the IMF said in a staff report after annual talks with U.S. economic officials.
IMF staff had expected gross domestic product to grow from 2.5 percent in 2002 to about 3.25 percent in 2003.
More fighting in the Middle East, as well as concerns about the economic situation in Latin America, added to the uncertainty. Yesterday, Uruguay received $1.5 billion from the Federal Reserve to help its ailing financial system. Brazil reportedly is seeking about $10 billion in similar assistance.
Investors viewed the turmoil as one more reason to lock in profits from the market's late-July rally, which is fading quickly. At yesterday's close, only about 340 points remained of the 1,009-point rally that the Dow racked up between July 24 and July 29.
"There hasn't been any stimulus to help the markets forward. So it's understandable that we're giving up ground," said Larry Wachtel, a market analyst at Prudential Securities. "We're doing it grudgingly. But the trend is still downward. I don't see anything that's going to rescue it."
Procter & Gamble fell $2.40 to $87.44 despite fourth-quarter results that exceeded Wall Street's expectations, but failed to impress investors who had hoped for more.
Financial stocks were also lower. That included Citigroup, which slid $2.23, or 7.2 percent, to $28.65 after a cautious note about the company's prospects from Lehman Brothers. J.P. Morgan Chase lost $1.50, or 6.3 percent, to $22.35, while American Express fell $2.66, or 8.1 percent, to $30.36.
Analysts said the negative tone reflects fears that the market and business conditions are worsening. They say investors, who have watched their portfolios disintegrate over the past two years, have become risk averse. Professional traders are also wary and frequently unwilling to make long-term commitments to the market.
The result is a high level of volatility, which further feeds investors' lack of confidence. With the July rally withering, there is even less incentive to take chances.

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