Interest rates are down. Industrial production is up. Consumers are spending, and inflation is nearly dead.

This wave of good news should drive stock prices higher. So why is the stock market slumping to lows not seen since the Sept. 11 terrorist attacks?

At the heart of the answer, experts say, is corporate fraud and a crumbling confidence in business.

"The No. 1 concern for the investor right now is not terrorism, it is definitely, without question, the lack of faith in the whole financial system," said William E. Lauer, chief investment officer at Chevy Chase Trust in Bethesda.

The scandals, he said, have "eroded investor confidence in corporate management, Wall Street and corporate auditing to such a large extent that we are seeing ... a real disconnect between what the economy is doing and what the market is doing."

Many investors are paying a heavy price.

The Standard & Poor's 500 stock index, one of the broadest measures of the market's performance, is down nearly 14 percent for the year, and last week it fell within seven points of its Sept. 21 low of 965.8.

The Nasdaq composite index sank to within a point of its September low and is down nearly 25 percent for the year. And although the Dow Jones industrial average is up 1,007 points from its Sept. 21 low, it is still down 7 percent for the year.

"There is not a lot of good news out there," said Ken Perkins, a research analyst at Thomson Financial/First Call, a Boston corporate earnings research firm. "We are all feeling the pain."

But not all of the market's problems can be blamed on the erosion of investor trust in corporate America, experts said.

A daily drumbeat of bad news is outweighing the improvements in the economy. Investors are nervous about more terrorist attacks, war in the Middle East, a weakening dollar, lackluster corporate profits and tight budgets that leave little room for increased company spending, they said.

There are concerns that foreign investors are pulling out of the U.S. market or shifting their investments from equities to bonds.

"Foreign investors are looking into other alternatives to diversify their portfolios," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York. "Are they necessarily lessening their holdings in the U.S.? The data does not show that."

Stephen J. Massocca, president of Pacific Growth Equities, a San Francisco investment banking firm, said there are plenty of issues other than scandal that are driving the market down.

"The reality is that the performance of the economy and corporate America as a whole will dictate where equity prices go," Massocca said. "I think it [the scandals] certainly has been an issue in front of the market. I think it is a short-term situation. I think it is measured in months. They make wonderful headlines."

But experts say the scandals of corporate America have taken their toll on investors and have shaken their confidence.

Seemingly every day brings another revelation of companies using questionable accounting practices and investors being punished as stocks plunge. The shenanigans range from accounting fraud to insider trading to paying executives multimillion bonuses after they have driven their companies into bankruptcy.

"This has all clouded and oppressed the investors' ability to see through it all to the fundamentals that ultimately drive markets," said Joseph V. Battipaglia, chief investment strategist at Ryan, Beck & Co. LLC of Livingston, N.J. "In a word, it is a lack of investor confidence. The overall mood in the market place is to stand on the sidelines at best and sell into the malaise."

Alan S. Blinder, professor of economics at Princeton University and a partner in the Promontory Financial Group, a Washington financial consulting firm, says there is a wide suspicion that the market is suffering from a "severe case of Enronitis."

"There are by now a whole host of companies which have been revealed to have had dubious accounting practices, questions raised about corporate governance, executive compensation, honesty in general," Blinder said. "It is a reasonable supposition that some investors, and maybe a lot, are worried about the quality and believability of earnings reports."

Blinder said Congress should do more to make sure that the accounting industry is more closely watched and that rules are established to limit the amount of money employees can invest in their company's stock through their 401(k) plans.

Some workers who lost their jobs at Enron when it collapsed watched their retirement savings vanish because it was invested in the company's stock.

"I do think that legislators ought to take note that some of the responsibility for removing this angst that rests over the market rests with them," Blinder said.

While some experts believe that investors will soon forget this wave of corporate scandals, others say it could take years to restore their faith.

"I think it is going to take quite some time to rebuild this trust," Lauer said. "This is something that the whole system is built on - trust. I don't think it is something that you can just erase overnight."