Dow tumbles 269 points as gloom grows


U.S. stocks fell yesterday for the third straight trading session - with the Dow Jones industrial average shedding an aggregate 700 points during that span - as fears of another economic downturn heightened.

The 30-stock Dow yesterday dropped 269.50 points, or 3.24 percent, to finish at 8,043.63. The broader Standard & Poor's 500 index skidded 29.64 points, or 3.43 percent, to 834.60.

The Nasdaq composite index also was hit hard again, falling 41.91 points, or 3.36 percent, to 1,206.01. With that decline yesterday, the high-tech bellwether has lost its gains from a powerful late-July rally and is at its lowest point since April 1997.

"This is just more of what has been happening," said Charles W. Cole, chairman and chief executive officer of Legg Mason Trust Co., in Baltimore. "Clearly, there is a lack of confidence in the financial numbers out there."

Sparking fears of another recession-like downturn was growing evidence of a slowdown in the biggest piece of the nation's economy, the service sector. The Institute for Supply Management's index of retail, financial services, construction and other nonmanufacturing companies dropped to 53.1 last month from 57.2 in June.

Readings of 50 and higher signify economic expansion, but last month's reading was lower than economists had expected and the lowest since January, when the index fell below 50. The decline was a cause for concern because the index measures 85 percent of the U.S. economy.

Also troubling was a warning by the International Monetary Fund that the bear market in stocks is undermining the economy's efforts to recover. The recovery's underpinnings have been eroded quickly: The IMF also revealed that it thinks last month's forecast of 2.5 percent growth this year and 3.25 percent next year might be overly optimistic.

The sell-off in stocks and indications of a worsening economy "have exacerbated the downside risks to the outlook for both personal consumption and business investment," said the IMF, which noted that it will probably reduce its forecasts for U.S. growth in its coming annual review of the economy.

The inability of shares of Procter & Gamble Co. to rise on fairly good company news added still more weight to the fears of a slowdown. Shares of the largest U.S. maker of household products fell $2.40, to $87.44, after the company said sales rose 6.1 percent, short of the 7 percent some analysts had expected.

Net income was 64 cents a share, compared with a loss of 23 cents a share a year earlier.

The steep sell-off of the past several months has been interrupted only by the rally the last week of last month, and some analysts say that powerful upturn appears to have been a bear market rally and that the stage could be set for another such upturn.

John Hussman, head of the Hussman Strategic Growth Fund, based in Ellicott City, said the kindling that fuels such typically powerful rebounds consists of falling interest rates and an underlying strength in stocks that might not immediately show up in the indexes.

"People are afraid the economy is weakening, and I think they're right," Hussman said. "But I think that people underestimate the time it takes for clear evidence of that weakness to appear."

Help could also come from traders who are heavily "short" of stocks - meaning they borrowed shares at a high price and sold them, betting they could buy them back at a lower price and pocket a profit.

During a rally, short-sellers are under intense pressure to cover their positions, creating rampant panic buying that can send stocks into near-vertical rallies.

"When there's short-covering in the market, you could see [rallies of] 400 to 500 points," said Cole, the Legg Mason Trust CEO.

But it was just about all downhill yesterday.

The Russell 2000 index, a benchmark of small-cap stocks, fell 9.33, or 2.5 percent, to 367.12, and the Wilshire 5000 total market index slumped 270.24, or 3.3 percent, to 7,916.23, erasing $324 billion in market value.

The Sun-Bloomberg index of the top stocks in Maryland lost 3.71 to 171.17. Lockheed Martin Corp. dropped $2.23 to $59.55, and Meridian Medical Technologies Inc. fell $1.90 to $31.50.

Declining issues led advancing ones 3-to-1 on the New York Stock Exchange. Volume came to 1.43 billion shares, down from 1.55 billion Friday.

Citigroup Inc., the world's largest financial-services company, slid $2.23, or 7.2 percent, to $28.65 after a cautious note about the company's prospects from Lehman Brothers Inc. J.P. Morgan Chase & Co. lost $1.50 to $22.35, and American Express Co. fell $2.66 to $30.36.

Health care shares fell as Medicare's administrator said the agency will seek to cut some payments. Pfizer Inc. declined $1.15 to $29.75.

Wal-Mart Stores Inc. fell 50 cents to $45.60, and J.C. Penney lost 10 cents to $15.91.

Cox Communications Inc., the fifth-largest U.S. cable operator, declined $4.83 to $20.19 after a Credit Suisse First Boston Inc. analyst said growth in administrative and sales costs will "make margin expansion difficult."

The Walt Disney Co. dropped $1.04 to $14.27, the lowest since December 1994. There are concerns about the outlook for its theme parks and ABC television network.

Interpublic Group of Cos. tumbled $4.69 to $14.99. The world's largest advertising company postponed its second-quarter earnings report.

Mirant Corp. fell 56 cents to $2.93. The energy trader said the Securities and Exchange Commission is looking into its accounting and trading.

Dynegy Inc. tumbled 71 cents to $1.41. A former controller filed suit alleging that he was fired after refusing to engage in illegal practices involving the accounting of natural gas trading.

Philip Morris Cos. rose $2.29 to $47.50, and R.J. Reynolds Tobacco Holdings Inc. gained $1.54 to $56.14. California's Supreme Court ruled that a 1988 law gives the world's two largest cigarette makers 10 years of immunity for conduct before state lawmakers stripped away the protection in 1998.

Japan's Nikkei stock average declined nearly 1.0 percent; Germany's DAX index plunged 5.7 percent; Britain's FTSE 100 fell 1.9 percent; and France's CAC-40 skidded 4.0 percent.

The Associated Press and Bloomberg News contributed to this article.

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