Down day on Wall Street

Wednesday, March 14th 2001, 12:00 am
By: News On 6

The decline began as soon as the market opened with the Dow quickly losing more than 300 points in a matter of minutes.

Investors, already struggling with a bleak outlook for U.S. corporate profits, were further shaken by news from Japan Tuesday, when the government admitted that the world's second-biggest economy is in a state of deflation. For months, Japan has been downplaying the possibility of deflation, an economic situation that can lead to recession.

The newest fear on Wall Street is that Japan's economic problems will cut into demand in that country for U.S. goods and services _ leading to a further drop in American stock prices.

``The reaction to word that Japan is in a pretty tough spot is perhaps the prevailing issue driving the market down today,'' said Charles G. Crain, strategist for Spears, Benzak, Salomon & Farrell, a division of Key Asset Management in New York.

U.S. financial stocks suffered after 19 Japanese banks were placed on ``negative watch'' by an international rating agency. Uncertain how exposed American banks are to Japan's crisis, investors drove J.P. Morgan Chase down $3.58 to $43.82, and Citibank down $3.22 to $45.17. Both are Dow components.

Some tech companies, which have suffered the most from the U.S. economic slowdown, already have said business has suffered declining demand abroad, particularly in Asia.

Cisco Systems' CEO John T. Chambers, for example, told investors at Tuesday's Merrill Lynch Global Communications Conference in New York business is getting tougher in Asia. The world's biggest supplier of Internet networking equipment, whose grim outlook issued late Friday helped spur Monday's big selloff, tumbled $1.34 on Wednesday to trade at $20.03.

Japan's Nikkei stock average closed up 0.2 percent Wednesday after falling to a 16-year low Tuesday. Japan's economic problems were significant enough to turn investors' attention away from bleak profit outlooks for American companies, which have been propelling stocks downward since late last year.

``The earnings worries are sort of institutionalized now,'' Crain said.

Stocks fell hard in Europe, plummeting to 16-month lows. The biggest losses came from technology and telecommunications stocks, which recoiled on the Nasdaq's instability.

Reports of weaker economies abroad dashed Wall Street's hopes that the market here had put in a bottom on Monday and that Tuesday's made modest gains could be the start of a rebound or even a short-term rally.

While the U.S. Federal Reserve has lowered interest rates twice this year and is widely expected to push rates lower again next week, the central bank's actions are not being viewed as aggressive enough to lift the economy out of its slump.

Investors, who had thought business would pick up in the second half of the year, are now afraid that earnings and the economy will remain in a slump all year.

``A lot of this reporting about being in a bear market has started to seep through,'' said Pradilla, the strategist for SG Cowen.

There was no safe haven in the Dow on Wednesday as every sector traded sharply lower. IBM slid $4.89 to $93.50, while Merck fell $1.62 to $71.31.

Tech losses were widespread, including Yahoo!, down 81 cents at $15.25, and Intel, off 63 cents at $28.75. The companies, along with Cisco, brought about the market's recent major tumble after warning late last week of poor business conditions.

Declining issues outnumbered advancers more than 3 to 1 on the New York Stock Exchange, where volume was 1.10 billion, compared with 1.06 billion at the same point Tuesday.

The Russell 2000 index, which tracks the performance of smaller company stocks, dropped 7.89 to 454.37.