The Dow industrials pulled off another sharp turnaround Wednesday, but the Nasdaq market slid to the lowest level in 15 months as investors continued to dump technology stocks and smaller-company shares.
The Dow Jones industrial average gave back an early 115-point gain and slid as much as 113 points before reversing course and closing just 1.29 lower at 7,741.69.
Broader stock indicators lagged again, however, with Nasdaq, dominated by leading technology names and thousands of small companies, taking a big hit for a third straight day.
The Nasdaq composite index fell 48.28 points, or 3.2%, to 1,462.61, its worst close since July 1997 and a drop of 27.4% from the July 20 peak of 2,104.25.
Meanwhile, U.S. bonds posted the biggest price loss in about a year as expectations that Japan will bolster its ailing economy sent the dollar tumbling, lessening the appeal of Treasuries as a refuge.
"We might be beginning to see some of the flight to quality money being unwound" as the dollar falls amid signs of progress toward reform in Japan, said Ken Anderson, who helps manage $14.5 billion at Evergreen Asset Management in Purchase, New York. "We could be facing a major turn in the market."
The price of the 30-year Treasury bond fell $22.19 per $1,000 bond, the biggest drop since Oct. 28, 1997. The yield rose to 4.86%, up from 4.73% on Tuesday.
Investors flocked to Treasury securities in recent months as a haven from turmoil in overseas markets and amid speculation the recession in many Asian economies may spread to the U.S.
In the Nasdaq market, the index has tumbled 152 points, or 9.4%, in just three sessions, breaching summer lows that many had hoped would stand as a bottom in the Nasdaq sell-off.
By contrast, it was the third time in four sessions the Dow has bounced back just as it threatened to break below the lows set on Aug. 31 and Sept. 1, a sign that investors may be more comfortable with blue-chip valuations at these levels--about 17% below the Dow's July 17 peak of 9,337.97.
The Dow opened the day strong as Fed Chairman Alan Greenspan spoke warily of the economy in a speech that analysts took as reassurance that the central bank plans to lower interest rates again.
The comments to the National Assn. for Business Economics came about a week after Fed officials lowered one of the central bank's key lending rates to offset the global slowdown with new borrowing and spending.
"The Fed will continue to cut rates, and with low interest rates and low inflation, you've got support for the market," said John Cleland, chief investment strategist at Security Benefit Group in Topeka, Kan. He suggested that "the collapse of the technology group may very well be a catalyst for a market bottom" by bringing valuations in that sector down to more realistic levels.
Among the leading technology names, Dell Computer fell $4.75 to $50.56, Cisco Systems dropped $2.31 to $43.88, and Microsoft declined $3.50 to $94.13 as the three most active Nasdaq issues.
The financial sector, which like the technology group is considered particularly vulnerable to the economic crises abroad, was also pounded again on Wednesday.
J.P. Morgan fell $4.50 to $74.50 and Travelers Group fell $2.75 to $31.75 as the Dow's two weakest components. Helping cushion the index were consumer names that do fairly steady business regardless of the economy's health: Procter & Gamble rose $3.13 to $77.38 and McDonald's rose $2.81 to $61.06.
Much of the volatility in the U.S. market came from nine computer-guided buy programs and 11 sell programs, according to Birinyi Associates Inc., a Greenwich, Conn., research firm. The programs had the net effect of adding 22 points to the Dow and 1.7 points to the S&P 500, the firm said.
Meanwhile, in a long-awaited step on the Asian front, Japan's ruling party submitted a bill Wednesday that would allow the government to use public money to rescue banks that have been crippled by bad loans.
Japan has been sharply criticized for its inaction on the banking crisis, which is considered a major obstacle toward recovery for both the Japanese and Asian economies. In Tokyo, the Nikkei stock average, which fell to another 12-year low on Monday, surged 6.2%.
Declining issues outnumbered advancers by a 2-1 margin on the NYSE, while Nasdaq decliners led by more than a 3-1 ratio.
NYSE composite volume totaled 1.144 billion shares, the third- biggest tally ever.
The Standard & Poor's 500 fell 13.91 points to 970.68, and the NYSE composite index fell 6.83 points to 484.68.
The Russell 2,000 index of smaller companies fell 10.32 points to 322.23, and the small-company dominated American Stock Exchange composite index fell 7.32 points to 585.77.
In commodity trading, hog and grain prices surged on speculation that the U.S. government will spend more than $550 million on food donations to Russia, which could help erode abundant U.S. supplies.
Russia, the 11th-largest consumer of U.S. farm products, requested U.S. wheat, corn, soybean meal and meat, said analysts and others familiar with the situation. A battered currency, food shortages and skyrocketing prices have crippled Russia's economy.
In European trading, Frankfurt's DAX index fell 1.7%, London's FTSE-100 fell 0.5%, and Paris' CAC-40 fell 1.2%.
Market Roundup, C8
Rally by Japanese yen rocks U.S. currency. A1