- The Washington Times - Tuesday, September 16, 2008

NEW YORK (AP) – U.S. stocks headed for a lower open and bond prices jumped Tuesday, a day after Wall Street’s worst session in years, as nervous investors awaited a decision from the Federal Reserve on interest rates.

The market didn’t appear to take solace from a New York Federal Reserve announcement that it would inject billions of dollars into the banking system and that it stands ready to add more later in the day if needed.

The New York Fed, which carries out the central bank’s market operation, announced a large overnight repurchase agreement. The Fed uses the so-called “repo” agreements to add liquidity to the market.

The move comes ahead of the Federal Reserve’s policy-making committee meeting on interest rates. While most investors last week expected that the central bank would leave short-term rates unchanged, the sharp sell-off Monday that left the Dow Jones industrials and the Standard & Poor’s 500 index down by more 4 percent makes the Fed’s move harder to predict.

Beyond speculating on what moves the Fed might make, investors are also eyeing the latest woes of American International Group Inc. Worries about the well-being of the world’s largest insurer pummeled the stock again Monday, sending it down about 61 percent. After the closing bell Monday, several ratings agencies reduced their ratings on the company. Lower ratings can add to the amount of cash the already cash-strapped company has to set aside. AIG shares fell 32 percent in premarket electronic trading.

Markets around the world were still reeling from the bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America Corp. Investors fear that tectonic shifts in the power structure of Wall Street signal that the financial sector’s trouble with imperiled credit are far from over.

Dow Jones industrial average futures fell 133, or 1.21 percent, to 10,826; on Monday, the Dow lost 504 points, its largest drop since the September 2001 terror attacks.

Standard & Poor’s 500 index futures fell 23.10, or 1.93 percent, to 1,173.00. Nasdaq 100 index futures fell 21.25, or 1.23 percent, to 1,170.00. Nasdaq futures had been higher but turned lower after Dell Inc. warned demand is eroding.

Bond prices jumped as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.41 percent late Monday. The dollar was lower against other major currencies, while gold prices rose.

The Fed’s regularly scheduled meeting, which many economists had expected would be a pro forma occurrence, is now much anticipated, especially after central banks around the world have loosened money supplies this week. Central banks are hoping an injection of capital will help soothe markets following the most serious tumult of the 14-month-old credit crisis.

Some observers now predict the Fed will introduce a small interest rate cut, especially now that a sharp drop in oil prices since midsummer has helped ease policymakers’ concerns about inflation. Other economists say the Fed will indicate it would be prepared to cut rates in the coming weeks if markets don’t stabilize.

The market showed little reaction to the first drop in the Labor Department’s Consumer Price Index in nearly two years. The CPI fell 0.1 percent last month, while the index excluding food and energy costs edged up a mild 0.2 percent. Both figures were in line with analyst expectations.

Some corporate news likely added to investors’ unease.

Goldman Sachs Group Inc., the largest of the two big independent investment banks on Wall Street, posted its sharpest decline in earnings since becoming a public company in 1999. The company said quarterly earnings fell 70 percent from a year earlier and that it saw “a marked decrease” in client activity. The profit results were better than Wall Street had been expecting, though revenue fell short. The stock fell 10 percent in electronic trading.

Dell Inc. warned that it sees a “further softening” in global demand in the current quarter. The computer manufacturer fell 8.5 percent in premarket trading.

Hewlett-Packard Co. announced plans Monday to cut 24,600 jobs, or about 8 percent of its work force, over the next three years as it works through its acquisition of technology-services company Electronic Data Systems Corp. HP shares were little changed early Tuesday.

Overseas, markets in Asia fell sharply Tuesday after being closed Monday. Japan’s Nikkei stock average fell 4.95 percent. Hong Kong’s Hang Seng index lost 5.44 percent.

In afternoon trading in Europe stocks showed far more modest declines than on Monday. Britain’s FTSE 100 fell 3.09 percent, Germany’s DAX index lost 1.95 percent, and France’s CAC-40 fell 1.85 percent.

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