Wall Street fell victim to a late-day selloff Tuesday after Federal Reserve policymakers decided not to cut interest rates again, rattling investors who were hoping for such added economic stimulus.
Analysts blamed the stock drop on traders who, in the absence of other news, had been focusing for days on the move by the Fed.
When the market began to fall shortly after the policymakers' announcement, computer-generated trading exacerbated the selloff.
The Dow Jones Industrial Average closed down 206.43, or 2.4 percent, to 8,482.46.
Broader stock indicators also fell sharply.
The Standard & Poors 500 index was down 19.59, or 2.2 percent, at 884.21, and the Nasdaq composite index was down 37.52, or 2.9 percent, at 1,269.32.
"Its the old story of sell on the news," said Larry Wachtel, market analyst at Prudential Securities Inc. in New York. "Today was selling on the news because theres nothing coming along in the dog days of August thats going to change the psychology."
Some investors had bet the Fed would lower rates again, and they sold as the decision to leave rates unchanged was announced.
Optimism that the Fed might lower rates contributed to the markets big rally last week, although much of those hopes faded over the weekend.
Analysts said the Fed decision could cause a short-term pullback in stocks as investors with few other obvious reasons to buy questioned the direction of the market.
"Reasons [to buy] at the bottom are never obvious," said Subodh Kumar, chief investment strategist for CIBC World Markets Inc., also in New York. "Some of those people who were more trading-oriented, who were hoping or thinking there might be a rate cut, might move the market lower, but I dont think it will stay that way."
But Kumar said stocks could stabilize and rise as scandal-wary investors begin showing more confidence in the veracity of financial results offered by companies, and as companies report earnings that point to a recovery.
A report Tuesday by the Commerce Department did little to stir the market. The government said sales at the nations retailers rose 1.2 percent in July, but most of the gains were the result of strong auto sales.
Investors also were keeping their eyes on the approaching deadline Wednesday set by the Securities and Exchange Commission for companies to certify their financial reports.
Analysts say that if many companies miss the deadline, that could further undermine investor faith and prompt stock sales.
Gainers included Wal-Mart Stores Inc., which rose 57 cents, to $48.98, after the nations largest retailer reported a 26 percent rise in its second-quarter earnings.
J.C. Penney & Co. fell 69 cents, to $16.06, after the company narrowed its quarterly losses, beating analysts expectations.
Declining issues outnumbered advancers by a nearly 5-to-2 ratio on the New York Stock Exchange, where volume was 947.84 million, compared with 766.83 million at the same time Monday.
The Russell 2000 index of small-company stocks fell 10.80, to 377.76.
Overseas, Japans Nikkei stock average fell 0.6 percent.
In afternoon European trading, Germanys DAX index rose 1 percent, Britains FTSE 100 was up 1.2 percent, and Frances CAC-40 rose 0.8 percent.
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