Dow drops 180 on fear of correction

Dow drops 180 on fear of correction

	Published : Tue, 27 Feb 2007 18:44 By : Agencies Print this Story

NEW YORK (AP) - Wall Street fell sharply Tuesday, joining a global stock decline sparked by growing concerns that the U.S. and Chinese economies are cooling and that U.S. stocks are about to embark on a major correction. In midday trading, the Dow Jones industrial average was down 180.65, or 1.43 percent, to 12,451.61.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 22.27, or 2.06 percent, at 1,426.67, and the Nasdaq composite index was down 54.57, or 2.18 percent, at 2,449.95.

A 9 percent slide in Chinese stocks earlier set the tone for U.S. trading, a day after investors sent Shanghai's benchmark index to a record high close.

Investors' confidence has been knocked down by a slew of data showing that the economy may be decelerating more than anticipated. A Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the U.S. economy, which were raised a day earlier when former Federal Reserve Chairman Alan Greenspan said the economy may be headed for a recession.

'It looks more and more like the economy is a slow growth economy,' said Michael Strauss, chief economist at Commonfund, noting that investors are expecting the government on Wednesday to revise its estimate of fourth-quarter GDP growth down to an annual rate of about 2.3 percent from an initial forecast of 3.5 percent . 'Moderate economic growth is good -- an abrupt stop in economic growth scares people.'

The housing market, which the Street had been hoping was at a bottom, also looked far from recovery after a Standard & Poor's index indicated that single-family home prices across the nation were flat in December. A later report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but the data didn't erase housing-related concerns, as median home prices fell for a sixth straight month.

A suicide bomber attack on the main U.S. military base in Afghanistan where Vice President Dick Cheney was visiting also rattled the market.

China's stock market plummeted Tuesday from record highs as investors took profits when concerns arose that the Chinese government may try to temper its ballooning economy by raising interest rates again or reducing more of the money available for lending.

'Corrections usually happen because of a catalyst, and this may be it,' said Ed Peters, chief investment officer at PanAgora Asset Management. 'The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop.'

The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share prices doubled last year as investors poured money into the market after the completion of shareholding reforms, trading in Shanghai has been very volatile.

Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and Malaysia's Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei stock average fell a more moderate 0.52 percent, but European markets were rattled -- Britain's FTSE 100 was down 2.31 percent, Germany's DAX index was down 2.96 percent, and France's CAC-40 was down 3.02 percent.

Bond prices rose as investors bought into the safe-haven Treasury market, with the yield on the benchmark 10-year Treasury note dropping to 4.60 percent from 4.63 percent late Monday. The bond buying was sparked primarily by the durable goods orders, which the Commerce Department said fell 7.8 percent, much more than what the market expected.

The data raised the chances of the Federal Reserve easing interest rates later in the year -- a possibility that makes the bond market an attractive place to be right now.

The hope for slowing inflation could be dashed, though, if energy costs keep rising. Oil prices initially fell Tuesday on worries that Chinese demand could be dampened should its economy slow down, but later rose on escalating tensions in the Middle East. Crude rose 48 cents to $61.87 a barrel on the New York Mercantile Exchange.

The dollar slipped against other major currencies, while gold also fell.

The Dow has been climbing at a steady rate since last summer, but over the past few trading sessions, stocks have pulled back on the worry that the market is due for a correction. Many analysts have noted that the Dow hasn't seen a 2 percent decline in more than 120 sessions.

Typically, data indicating a slow economy has given stocks a boost on the hopes that the Fed will lower interest rates, which could reinvigorate consumer spending and the struggling housing market. But the market may fall further before that happens, analysts said.

'If in a week or two, the psychology in the U.S. market turns to the realization that we are in a modest growth economy of 2 to 3 percent growth, that will help temper inflation pressures going forward. If that perception evolves, there's an increase in the likelihood that the Fed will be lowering rates rather than raising rates. Structurally, it's a development that should be good for the equity market, but it might be an event that unfolds after prices are lower,' Strauss said.

Declining issues outnumbered advancers by about 6 to 1 on the New York Stock Exchange, where volume came to 806.42 million shares.

Stocks across all sectors fell, and every Dow component was down by midday trading.

The Russell 2000 index of smaller companies was down 15.78, or 1.92 percent, at 807.91.

NYSE-listed shares of Chinese companies plunged. China Mobile Ltd. tumbled $3.58, or 7.3 percent, to $45.70. Mindray Medical International Ltd. dropped $2.46, or 8.6 percent, to $26.25. China Eastern Airlines Corp. fell $5.07, or 15 percent, to $28.68.

On the Nasdaq, Internet company Baidu.com Inc. fell $4.44, or 4 percent, to $107.27. Shanda Interactive Entertainment Ltd., which develops online games, fell 95 cents, or 3.8 percent, to $23.97. Netease.com Inc. fell 68 cents, or 3.1 percent, to $21.13.