Dow drops below 9,000 as WorldCom scandal sends stocks tumbling
AP Business WriterNEW YORK (AP) -- Stunned by news of another accounting scandal, this time at WorldCom, investors sent stocks plunging Wednesday, with the Dow Jones industrials dropping as much as 200 points and below 9,000 for the first time since October. The Nasdaq composite index traded below its post-Sept. 11 closing low.
Yet the indexes managed to recover from their sharpest losses in the last hour of trading. The Dow pulled back above 9,000, suffering only a slim loss, while the Nasdaq eked out a small gain.
Analysts discounted the comeback, saying it was triggered by computer-generated buying set off by lower prices.
"We've had these reversals before, and here's another one," said Richard A. Dickson, technical analyst at Hilliard Lyons in Louisville, Ky.
After falling as much as 200.25, the Dow closed down just 6.71, or 0.1 percent, at 9,120.11, according to preliminary calculations. The Dow sank 155 Tuesday, its fourth triple-digit loss in the past five sessions.
The Dow hadn't traded below 9,000 since Oct. 10, and last closed below that milestone on Oct. 2, when it reached 8,946.56. At that time, the market was recovering from the precipitous drop it suffered following the Sept. 11 terrorist attacks.
The broader market ended mixed Wednesday. The Nasdaq rose 5.34, or 0.4 percent, to 1,429.33. For much of the day, the Nasdaq traded below its post-Sept. 11 closing low of 1,423.19, reached Sept. 21.
Meanwhile, the Standard & Poor's 500 index fell 2.60, or 0.3 percent, to 973.54, also trading much of the session below its Sept. 21 low close of 960.63.
An announcement from WorldCom that it disguised $3.8 billion in expenses last year and early in 2002 shook a market already mistrustful about corporate accounting following the collapse of Enron Corp. and revelations of bookkeeping irregularities at other companies.
Other than occasional bargain hunting, investors have little reason to buy stocks for the foreseeable future, analysts said.
"Valuations are still high," Dickson said. "And, you have a perception that corporate America is not being straight with investors, and that the point of accounting is to hide rather than divulge."
The Federal Reserve's decision to leave interest rates unchanged had little effect on trading. The market had expected the Fed to leave rates alone given the sluggish economic recovery.
WorldCom did not trade Wednesday. But telecommunications stocks were weak with AT&T declining 33 cents to $9.62.
The financial sector fell on investors' concerns that banks would lose money on WorldCom loans, estimated at $2.6 billion. Citigroup sank $2.12 to $37, while Bank of America fell $2.58 to $67.45.
Stocks have fallen for nearly six weeks amid fading hopes for a robust economic recovery and a solid improvement in corporate earnings. With news of more corporate accounting problems, doubts resurfaced about the reliability of the earnings reports themselves.
"If it happens once, it's isolated. The more it happens, the more it hurts confidence. It just has to stop. It has to be cleaned out and stopped," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee.
Embroiled in their own accounting scandals, Tyco fell $2.29 to $11.26, but ImClone Systems inched up 7 cents to $9.02.
Martha Stewart Living Omnimedia tumbled nearly 23 percent, down $3.10 at $10.50, on a report in The Wall Street Journal that Martha Stewart might be facing a wider investigation of her sale of ImClone shares, including possible charges of obstruction of justice and making false statements.
Food wholesaler Supervalu slid 21 percent, down $5.91 at $22.15, after saying it will take an after-tax charge of up to $21 million to clean up its books following intentional inventory misstatements by a former employee over at least four years.
Wednesday's losses even reached companies considered the most reputable. 3M fell $2.15 to $120.46, IBM stumbled 99 cents to $67.61, and McDonald's declined 81 cents to $28.24.
Disappointing earnings news drove other stocks lower. Micron Technology fell $1.08 to $18.67 after reporting a fiscal third-quarter loss of 4 cents a share, missing analysts' forecasts for a 6-cent profit.
Declining issues outnumbered advancers 5 to 3 on the New York Stock Exchange. Volume was heavy at 1.99 billion shares, ahead of Tuesday's 1.50 billion.
The Russell 2000 index, the barometer of smaller company stocks, rose 0.52, or 0.1 percent, to 452.97.
Overseas, stocks fell sharply Wednesday with Japan's Nikkei stock average finishing down 4.0 percent. In Europe, France's CAC-40 lost 1.7 percent, Britain's FTSE 100 sank 2.2 percent, and Germany's DAX index fell 2.5 percent.
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