- The Washington Times - Tuesday, March 25, 2003

Stocks retreated sharply yesterday as the war in Iraq intensified, dousing hopes for a quick and relatively bloodless victory.
The Dow Jones Industrial Average dropped 307 points to 8,215, losing almost one-third of last week's gains, while oil prices surged on renewed fears of sabotage to Iraq's oil fields.
"This might not be as quick and easy a victory as originally hoped," said Hillary Cook, head of investment strategy at Barclays Private Clients. "Reality is reasserting itself, and when the bodies do start coming home, it [will] be hard to take."
The Dow, the Standard & Poor's 500 Index and the Nasdaq Composite Index lost 3.5 percent or more after a weekend in which more than 20 U.S. soldiers were killed or captured. Some of the prisoners were displayed on Iraqi television.
Yesterday, Iraq claimed to have shot down two U.S. helicopters and taken the pilots as prisoners, while U.S. forces pushing toward Baghdad and patrolling captured territories in the south continued to meet stiff Iraqi resistance.
Fighting flared around southern oil fields captured by coalition forces last week, driving out firefighters and raising concerns about whether those critical fields, which hold more than half of Iraq's prodigious oil reserves, are truly secure.
Crude prices, after plunging 24 percent last week, surged 6.5 percent to $28.66 a barrel in New York trading, undermining hopes that the "oil tax" soon will be lifted from U.S. consumers and the economy.
"The Iraqi resistance has turned out to be stronger than we expected after the initial advances," said Jim Steel, a research director at Refco Inc. "All of the political-risk premium was taken out of the oil price last week, which, in hindsight, looks premature."
While the fate of Iraq's oil facilities remains in doubt, the likelihood of any successful Iraqi attack on Kuwaiti or Saudi oil fields appears remote, analysts say, suggesting prices should not return to the highs near $40 reached last month.
But oil prices have come under pressure in recent days from disruptions in Nigerian exports caused by civil unrest. The West African country is the fourth-largest supplier of oil to the United States.
Ed Yardeni, chief investment strategist with Prudential Securities, said recent events have brought uncertainty back to the markets.
"Too bad Saddam Hussein didn't take the severance package he was offered," ensuring a swift end to the war, Mr. Yardeni said.
"On the other hand, he could be dead and his body doubles might soon surrender," he joked.
Despite some rebound in oil prices, the dramatic cut in the "oil tax" on American consumers last week still promises to provide welcome relief during the summer driving season, he said. "The risks of an economic downturn are greatly reduced."
Economists are closely watching not only the war's effect on oil prices, but its impact on consumer and business confidence and spending. A consumer confidence report today is expected to show another drop in the wake of the war.
During the 1990-91 Persian Gulf war, consumers sequestered themselves at home to watch developments unfold on television, creating a "CNN effect" that depressed spending and helped drive the economy into recession.
Some retailers are reporting a similar response to last week's start of the war, with auto dealers saying traffic in showrooms was down by as much as 50 percent. Discount stores such as Wal-Mart reported no marked impact on their business, however.
Kazuto Uchida, chief economist at the Bank of Tokyo-Mitsubishi Index, which tracks activity at big retailers, said sales appeared to drop overall by about 1 percent last week because of the "CNN effect." He says that loss may be reflected in sales for all of March.
The weeks of buildup to the war also deterred businesses from making new spending plans and hiring new workers, in an important impediment to growth. There is no sign that trend has ended with the start of the war, analysts said.
"I don't think we're likely to see all businesses take advantage of the opportunity to invest even at these historically low interest rates until some of the uncertainty associated with war, terrorism and oil prices begins to clear up," Atlanta Federal Reserve Bank President Jack Guynn said in a speech yesterday.

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