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Stocks fall on bad earnings news, Xerox probe; Dow hits four-year low

| Wednesday, Sept. 25, 2002

NEW YORK (AP) — Wall Street's malaise deepened Tuesday, with stocks falling on a confluence of factors that included disappointing earnings news and a criminal investigation into Xerox's accounting practices. The Dow Jones industrials dropped nearly 190 points to hit a four-year low.

Growing concerns about a possible war with Iraq exacerbated the selling. There was little reaction to the Federal Reserve's decision to leave rates unchanged.

"It's still not a great environment," said Charles White, portfolio manager at Avatar Associates. "There's still a wave of sentiment out there where people are disgusted and throwing in the towel."

The Dow fell 189.02, or 2.4 percent, to close at 7,683.13. The blue chips registered their fourth triple-digit loss in six sessions, falling to their lowest close since Oct. 1, 1998, when they stood at 7,632.50.

The Dow also broke through its July 23 low of 7,702.34.

The broader market also finished lower. The Nasdaq composite index dropped 2.76, or 0.2 percent, to 1,182.17, reaching another six-year low. The Standard & Poor's 500 index was down 14.41, or 1.7 percent, at 819.29.

The Fed's Open Market Committee chose to leave rates at 40-year lows at its meeting Tuesday, saying consumer and business demand is "growing at a moderate pace." But it also noted that considerable uncertainty remains about the timing and strength of an economic recovery, partly because of increased tensions about Iraq and terrorism.

Still, two of the 12 committee members voted against the decision to leave rates unchanged, and analysts said the dissent indicated growing sentiment for a rate cut.

"I think it's a clear indication that the future of interest rates is stable to lower, and that ought to be good for stocks," White said.

Investors have been focused on the strength of the recovery and had little optimism before the Fed's meeting. In the past month, investors have punished stocks on a spate of mixed economic news, earnings warnings and concerns about a war with Iraq.

"A lot of the reason the market has been stumbling is because the outlook for growth and earnings was deteriorating. Then you have the Fed come in and say, 'Oh, we're not going to do anything about it,"' said Jeffrey Applegate, chief investment strategist at Lehman Brothers.

"Since you didn't get help on the policy side, the market went down some more," he said.

On Tuesday, stocks got an initial lift after the New York-based Conference Board said its Consumer Confidence Index fell to 93.3 in September. It was the fourth straight month of decline, but the index beat analysts' forecasts of 92.4.

Tech stocks managed to fare better than blue chips.

"A lack of Nasdaq-specific bad news is helping, although it isn't necessarily a great reason to buy stocks," said Jack Caffrey, equities strategist J.P. Morgan. "In the last several weeks, volume has been low, which we take as a lack of conviction on the part of investors."

Decliners included Xerox, which fell 71 cents to $5.96 after the company said federal prosecutors were opening a criminal inquiry into the company's accounting practices.

Weyerhaeuser fell $5.94 to $43.79, after the paper company said it expected third-quarter earnings to fall below expectations because of weak lumber prices. The news dragged down International Paper, a Dow component, which dropped $2.21 to $31.94.

The airline sector also took a hit. UAL's United Airlines fell 22 cents to $2.12, while AMR Corp.'s American Airlines dropped 62 cents to $3.60.

Gainers included Goldman Sachs, which climbed 64 cents to $66.31, after the investment bank reported third-quarter earnings that beat expectations by a penny.

Declining issues outnumbered advancers 5 to 2 on the New York Stock Exchange. Consolidated volume was heavy at 2.07 billion shares, compared to 1.68 billion traded Monday.

The Russell 2000 index, which tracks smaller company stocks, fell 2.10, or 0.6 percent, to 356.58.

Overseas, Japan's Nikkei stock average finished lower 1.7 percent. In Europe, France's CAC-40 fell 1.8 percent, Britain's FTSE 100 declined 1.8 percent, and in late afternoon trading, Germany's DAX index was down 1.4 percent.

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