Investors concerned about slowing economic growth sent stocks sharply lower yesterday after the Federal Reserve said it would continue raising...
NEW YORK — Investors concerned about slowing economic growth sent stocks sharply lower yesterday after the Federal Reserve said it would continue raising interest rates despite Wall Street’s worries about the economic impact of Hurricane Katrina.
The Dow Jones industrial average fell 76.11 to 10,481.52.
Microsoft, one of the 30 Dow stocks, slipped 16 cents to close at $25.84 a share. Boeing, also a Dow stock, fell 65 cents to $63.45.
Broader stock indicators also moved lower. The Standard & Poor’s 500 index lost 9.68 to 1,221.34, and the Nasdaq composite index dropped 13.93 to 2,131.33.
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While some investors had hoped for a pause in rate increases after the hurricane, the Fed — concerned about high oil prices and their potential to spark inflation — raised the nation’s benchmark rate by a quarter percentage point to 3.75 percent. The Fed said the destruction along the Gulf Coast, while hampering economic activity short-term and pressuring the stock market, did not pose “a more persistent threat” to the overall economy.
Instead, the Fed said it would stick to its policy of gradual rate increases. While that may keep inflation in check, the move would make it more expensive to borrow money — something that investors feared could hinder economic expansion.
“I would read it as a very hawkish statement under the circumstances, barely paying lip service to the potential threat to the economy from Katrina,” said Chris Piros, director of investment strategy for Prudential’s Strategic Investment Research Group. “They’re saying they have an obligation to maintain price stability and fight inflation, but no obligation on economic growth or anything else.”
Crude-oil prices fell more than $1 a barrel yesterday as traders took profits from a huge spike a day earlier, brought about by worries that Hurricane Rita could inflict further damage to an industry still reeling from Hurricane Katrina’s onslaught three weeks ago.
Prices also eased on news that OPEC would release an extra 2 million barrels of oil a day.
Oil prices fell back yesterday after jumping more than $4 a barrel Monday — the biggest one-day price jump ever. Light, sweet crude for October delivery fell $1.16 to settle at $66.23 a barrel on the New York Mercantile Exchange.
Prices are more than 45 percent higher than a year ago, but off the all-time high of $70.85 a barrel reached briefly on Aug. 30 when Katrina made landfall.
“Yesterday was a mad rush, and today, cooler heads are prevailing a little bit,” said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. “Obviously the market is extremely concerned about potential of Rita to cause damage, but she hasn’t caused any yet.”
He added that with forecasters wavering on where Rita is likely to strike down and saying it may bypass Houston, a refining hotspot, “that bit of uncertainty is enough to take profits.”
The markets were mostly unfazed as the Commerce Department reported a decline in new-home construction, a possible sign of a cooling housing market. Construction of new homes and apartments dropped 1.3 percent last month after a decline of 1.5 percent in July, the first back-to-back declines in housing starts in 17 months. As long as the drop in construction remains moderate, and consumer spending can remain strong, the economy would likely continue to grow, albeit at a slower pace.
Earlier, stocks had moved higher as Circuit City posted a surprise profit for the third quarter, reassuring Wall Street that consumers’ appetite for spending is holding up. Circuit City posted earnings of a penny per share, better than the 3-cent-per-share loss expected on Wall Street. The electronics retailer jumped 92 cents to $16.43, while rival Best Buy, which disappointed investors last week with sluggish profits, lost 73 cents to $41.51.
While Circuit City encouraged investors, consumer spending may still be a troublesome issue heading into the holiday season. The International Council of Shopping Centers (ICSC) said retail sales at chain stores fell 2.1 percent for the week ending Sept. 17, the largest dropoff since Dec. 6, 2003, and the fourth straight week of flat or declining sales. The ICSC blamed high gasoline prices and falling consumer confidence for the decline.
In other earnings news, Wall Street firm Goldman Sachs slumped 23 cents to $118.05 after reporting an 83 percent surge in third-quarter profits. Revenues jumped 61 percent on strong fixed income and commodity trading, while the brokerage house remains atop the rankings for announced merger-and-acquisition deals.
Federated Department Stores dropped 94 cents to $64.76 after the company announced it would slash 6,200 jobs following the completed acquisition of May Department Stores. The cuts will come in 2006.
Sluggish sales prompted U.S. Steel to lower its quarterly earnings forecasts below Wall Street’s current estimates. Higher energy costs could also eat into profits, the company said. U.S. Steel lost $2.44, or 5.4 percent, to $42.81.