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Stocks fall modestly in volatile session

The Dow ends down 0.8%, retaining most of the 936-point gain that it posted Monday.

October 15, 2008|Walter Hamilton | Times Staff Writer

NEW YORK — The stock market took another volatile ride Tuesday but ended down only moderately, a positive sign given that stocks managed to hold on to most of their enormous gains from a day earlier.

The Dow Jones industrial average lost 76.62 points, or 0.8%, to 9,310.99, retaining most of the 936-point advance it registered Monday. The Standard & Poor's 500 shed 5.34 points, or 0.5%, to 998.01.

But the tech-heavy Nasdaq composite index was hit hard, falling 65.24 points, or 3.5%, to 1,779.01. Big tech stocks such as Microsoft Corp. and Intel Corp. dropped.

Overall, market watchers were encouraged because some profit-taking was expected after the S&P bounded more than 24% from its intraday low Friday to its high Tuesday.

"It's good news that we recovered some of what we lost last week on Monday, and good news that we didn't give it back right away," said Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors in Albany, N.Y.

Financial stocks led the way higher on expectations that the government's plan to pour $250 billion into the industry will help battered institutions rebound from the global crisis.

But it was another wild ride.

The Dow gained more than 400 points early in the day before profit-taking set in that at one point dragged it down more than 300 points. Investment bank Morgan Stanley, which rocketed 87% Monday on news of a capital infusion from Japan, rose an additional 21% Tuesday to $21.94.

The whirlwind movement is customary after a dramatic sell-off and explosive rebound, said Phil Roth, a market analyst at New York brokerage house Miller Tabak & Co.

"We had a sharp rally, [so] there's going to be some testing," he said. "This is probably not a re-acceleration on the downside. Ultimately, some kind of bottom is forming."

Intel shares fell more than 6% to $15.93 as investors fretted over release of the chip maker's third-quarter earnings, which were reported after the close. Intel's profit beat Wall Street's forecast, but revenue was below expectations and the company said the current financial crisis made it difficult to predict fourth-quarter results. Still, its shares rose more than 3% in after-hours trading.

The credit markets improved marginally, providing some positive news for investors.

The interest rate on three-month interbank loans eased back to 4.64% from Monday's level of 4.75%. That was the closely watched barometer's biggest one-day drop since March, but it's still far above the 2.81% level it stood at two months ago.

A central tenet of the government's latest bailout plan, which includes guaranteeing bank debt for three years, is to prod banks to lend to one another as a first step toward opening the credit spigot to businesses and consumers.

The yield on three-month Treasury bills rose to 0.3% from Friday's close of 0.19% but remained extremely low, demonstrating investors' continued caution about taking investment risks. The U.S. bond market was closed Monday for Columbus Day.

Meanwhile, oil fell $2.56 to $78.63 a barrel.

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walter.hamilton@latimes.com

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