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Stocks decline on earnings news

Dow falls 231 points, erasing more than half of Monday's gain.

October 22, 2008|Martin Zimmerman | Zimmerman is a Times staff writer.

The Dow Jones industrial average ended an up-and-down day on a decidedly low note Tuesday, losing more than 230 points as a series of profit mishaps by major U.S. companies brought economic worries back into focus for investors.

The loss erased more than half of Monday's impressive 413-point gain, which came on signs that the global credit crunch is easing and on Federal Reserve Chairman Ben S. Bernanke's support for a new economic stimulus package from the federal government.

But on Tuesday, an earnings shortfall by heavy-equipment maker Caterpillar and reduced 2008 profit forecasts from chemical maker DuPont and chip maker Texas Instruments offset better-than-expected results from pharmaceutical giant Pfizer.

The disappointments reminded investors that the global credit crisis is only part of the reason stock markets around the globe are down 30% or more this year. Fears of a possibly deep worldwide recession are also playing a key role.

On a more positive note, high-profile tech stocks Apple and Yahoo were up 13% and 7.5%, respectively, in after-hours trading as investors responded positively to their quarterly profit reports, which were released after the closing bell.

The Dow Jones industrial average ended the day down 231.77 points, or 2.5%, at 9,033.66. That was only a few points above its low for the day and erased a mid-session rally that saw the 30-stock index pop briefly into positive territory.

And it was yet another day of volatility for rattled investors. The Dow has closed with triple-digit gains or losses in 27 of the last 32 trading sessions.

Broader indexes were down even more than the Dow. The Standard & Poor's 500 index was off 30.35 points, or 3.1%, at 955.05, and the tech-heavy Nasdaq composite was down 73.35 points, or 4.1%, at 1,696.68. Losers outnumbered winners by about 2 to 1 on the New York Stock Exchange.

Volume was relatively low for a second day, raising hopes that the late-in-the-day waves of forced selling by mutual funds, hedge funds and other money managers needing to raise cash to meet customer redemptions might be abating.

But the light trading also could signal a lack of buying interest among worried investors, said Bill Buechler, president of Buechler Capital Asset Management in La Jolla.

"We may be at the point where the heavy selling is pretty much done, but there's no overwhelming reason to be a buyer," he said.

The credit markets showed further signs of improvement. Interest rates on inter-bank loans fell again, suggesting that banks were more willing to lend. And although the yield on the three-month Treasury bill fell to 1.10% from 1.25% on Monday, indicating a rebound in demand for the safety of T-bills, that was still well above the 0.20% level last week.

In the latest move to deal with the credit crisis, the Federal Reserve said it would buy commercial paper -- short-term corporate IOUs -- from money market funds that have had to meet large redemption requests from investors worried about their money.

The market for commercial paper, a common investment for money funds, seized up this year as part of the overall credit crunch.

Meanwhile, a deadline for settling an estimated $400 billion of insurance sold on the debt of bankrupt Lehman Bros. passed without a major market upset, despite concerns that the process could trigger huge losses for banks, hedge funds and others. For now, at least, the deadline was a "non-event," according to one analyst.

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martin.zimmerman@latimes.com

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