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Investors Not Easily Reassured

Wall Street: The day's wild swings cast doubt on U.S. leaders' ability to influence markets.


WASHINGTON — U.S. stocks gyrated wildly again Monday, extending a slide that threatens to stall growth and exposing the limits of American leaders' ability to affect the course of economic events.

Edgy investors barely noticed President Bush's second attempt in as many weeks to accent the economic positive as they drove down the Dow Jones industrial average more than 400 points before erasing all but 45 points of those losses in the final 90 minutes of trading.

Bush told a Birmingham, Ala., audience that the nation is on the economic rebound. "In spite of the fact that we've been in a slump for a while ... the economy is coming back. That's a fact," he said.

The president's outlook undoubtedly will be seconded today when Federal Reserve Chairman Alan Greenspan gives Congress his semiannual assessment of the economy.

But a variety of analysts said neither man has much power to convince investors, concerned consumers and stubbornly pessimistic executives.

"This is the story of a bubble; what went up in the late 1990s is coming back down," said David M. Jones, a Denver economic consultant and longtime Fed watcher. "Bush couldn't do much about it, and Greenspan isn't going to be able to change the trajectory either."

What in effect has happened, according to analysts, is that the steady drumbeat of accounting scandals and revelations of executive self-dealing has caused doubts that initially were confined to the dot-com and telecom worlds to spread to virtually all of corporate America.

"People don't know what to believe about any company at this point," said Jason Trennert, a managing director with ISI Group, a New York investment strategy firm. "Until they know where all the bodies are buried, it's going to be a very tough market."

The spread of doubts has come at a particularly unfortunate moment--just as the ability of policymakers such as Bush and Greenspan to do much about them has been greatly diminished.

In the president's case, the problems include the sudden reemergence of multibillion-dollar budget deficits after years of surplus, and what both Democratic and Republican critics charge is the White House's use of accounting gimmicks to keep the numbers from appearing even larger.

"For the businesspeople running the administration, this has got to be a nightmare," said University of Wisconsin political scientist Charles O. Jones.

In the Fed chairman's case, the problem is twofold. The Fed already has cut short-term interest rates to a four-decade low in a move that has thrilled home and car buyers but failed to rekindle crucial business investment. Also, Greenspan has steadfastly said he doesn't have the right or the power to influence the very thing that most worries many people at the moment, the tumbling stock market.

Dollar Continues to Fall

Given these circumstances, analysts predicted, the central banker will spend most of today arguing that the nation's real economy, which produces goods and services, is growing again, and that the effects of falling stock prices will remain confined to a small slice of the public at the very top of the nation's income pile.

"I wouldn't mind if he said something to cheer people up, but I wouldn't bet on it," said Bennet T. McCallum, an economist at Carnegie-Mellon University in Pittsburgh and a member of the Shadow Open Market Committee, a group of private analysts who follow the Fed closely. He certainly won't do it by promising more interest rate cuts, McCallum added.

Monday's bad news went well beyond bouncing stock indexes. The value of the dollar continued its fall against other currencies, signaling that foreign investors, who have been big buyers of U.S. stocks in recent years, are taking their money elsewhere.

The dollar fell below the euro, the European currency, for the first time in 2 1/2 years and slipped as well against the Japanese yen. Its value has declined almost 15% since February after rising steadily since the mid-1990s.

"All these corporate scandals have hurt our reputation. [Foreign investors] don't know where the next shoe is going to drop and they're not waiting to find out," said Morris Goldstein, a senior fellow with the Institute for International Economics, a Washington think tank.

The Dow, already down about 150 points when Bush began speaking, dropped an additional 40-plus points but then bounced back. However, hours after the president's speech, the index headed back down with a vengeance, plummeting almost 440 points to within a hair's breadth of its lows in the aftermath of the Sept. 11 attacks before snapping back to close down 45.34 points, or 0.5%, at 8,639.19.

The broader Standard & Poor's 500 index traced a similar path, plunging below the 900 mark for the first time since the fall of 1997 before coming back to close down 3.46 points, or 0.4%, at 917.93. The tech-heavy Nasdaq composite index actually ended the day up 9.12 points, or 0.7%, at 1,382.62. Nasdaq last week fell to a five-year low.

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