Dow off 189 as late selling guts a rally

By Charley Blaine and Elizabeth Strott

The stock market gave up decent gains and moved lower for a sixth straight day after central banks around the world cut interest rates to free up the global credit system.

The sell-off occurred mostly in the last half-hour of trading and confirmed a theme for stocks all year: Sell into any rally.

The Dow Jones industrials closed down 189 points, or 2%, to 9,258. The Standard & Poor's 500 Index was off 11 points, or 1.1%, to 985, and the Nasdaq Composite Index fell 15 points, or 0.8%, to 1,740.

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The closes for the Dow and S&P 500 were their worst since Aug. 11, 2003. The Nasdaq's close was its worst since Aug. 18, 2003.

The weak close left the Dow down nearly 35% and the S&P 500 down 37% from the peaks of Oct. 9, 2007. Thursday is the anniversary of that peak.

The market faces another potentially volatile day on Thursday, but volume is likely to be light because many traders will be observing Yom Kippur. However, a Securities and Exchange Commission ban on short-selling financial stocks (and several others as well) expires at midnight tonight.

• Top Stocks Blog: What happens when short ban expires?

Stocks in Japan and Hong Kong were trading higher on Thursday. Futures trading suggests U.S. stocks could open up slightly.

IBM earnings jump 20%

Investors did get some decent news that may affect markets Thursday from tech giant IBM (IBM, news, msgs). After the close, Big Blue said its third-quarter profit jumped 20%.

IBM shares jumped 5.9% to $95.50 after hours; they'd fallen 5.3% to $90.55 in regular trading. IBM also stood by its full-year outlook. The guidance defied worries that the financial crisis would hurt demand for its computer products and services.

Technology shares have been hammered this week by fears that a global recession would crush corporate IT spending. European tech giant SAP AG (SAP, news, msgs) warned this week that it had seen a sudden drop-off in software sales in September.

IBM said net income rose 20% to $2.8 billion. Earnings from continuing operations rose to $2.05, up from $1.68 a year ago. Revenue rose 5% to $25.3 billion, including 3 points from currency benefits, IBM said. Analysts had been expecting $2.01 in earnings on revenue of $26.5 billion.

A wild and crazy day

The market was so volatile today that the Dow went from negative to positive four times before slumping 323 points in the last 45 minutes of trading.

The heaviest selling came with stocks that had been having decent days. Chevron (CVX, news, msgs) had been up 5.2% to $77.16 at 3:30 p.m. and closed down 0.3% at $73.10. Dow component Kraft Foods (KFT, news, msgs) had been up 1.2% at 3:30 p.m and was down 2.5% to $29.97 at the close.

Apple (AAPL, news, msgs) was sporting an 8% gain to $96.33 at 2 p.m. -- and ended at $89.79, up just 0.7%.

Here's what prompted the sell-off:

• The rate-cut by the Federal Reserve, the European Central Bank, Bank of England and others may not be enough to accomplish its goal of freeing up credit so that economies around the world don't freeze up.

• Concern continues to grow about the health of financial companies. A quietly growing issue is the health of insurance companies after the collapse of American International Group (AIG, news, msgs). Shares of MetLife (MET, news, msgs) fell 26.8% to $27 after cutting third-quarter earnings guidance to 83 to 93 cents a share. Analysts had been expecting $1.44 a share. MetLife will also shrink its workforce and sell new common shares to bolster its capital amid rising investment losses. "I think we're as well positioned as anyone in our industry for these times," Steve Kandarian, MetLife's chief investment officer, said on a conference call, "but we are not immune, nor is any other of our peers."

• The economic slowdown is spreading. Retailers reported weak September sales today and forecast that the Christmas season is likely to be soft. J.C. Penney (JCP, news, msgs) said it expects same-store sales to decline by low single digits in October and its third quarter. It cut its earnings estimate from 70 to 75 cents a share to 50 cents to 60 cents. The stock fell 4.6% to $27.25; it's down nearly 60% in the last year. Wal-Mart Stores (WMT, news, msgs) reported a 2.4% sales increase, just shy of Wall Street's estimate for a 2.5% rise. Shares fell 0.5% to $54.55.

• Fear remains firmly in control for now. The CBOE Volatility Index ($VIX.X), a ratio of put options (options to sell) to call options (options to sell), closed at 57.530, up 7.2% from Tuesday and hit an intraday high of 59.06. Investors buy put options if they see stocks falling. (But because the index is so high, history suggests a powerful rally may be building.)

The volatility for stocks was also mirrored in commodities. Gold was up 2.8% to $906.50 an ounce in New York as some investors still wanted safety.

Crude oil was down 1.2% to $88.95 a barrel in New York as reports showed rising supplies in the United States and falling demand. Indeed, MasterCard Advisors' weekly Spending Pulse report, for example, showed that U.S. drivers consumed 9.5% less gasoline than they did a year ago. Gasoline consumption has shown declines for 24 consecutive weeks.

Only six of the 30 Dow stocks ended the day higher, led by General Electric (GE, news, msgs), up 1.7% to $20.65 and Intel (INTC, news, msgs), up 1.4% to $16.25. The laggard was Alcoa (AA, news, msgs), down 12% to $14.71 after reporting weak third-quarter earnings.

Only 100 S&P 500 stocks were higher, along with 40 stocks in the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks.

The index was unchanged at 1,330, largely because of strength in Qualcomm (QCOM, news, msgs) and Research In Motion (RIMM, news, msgs), up 4.8% to $41.07 and 4.6% to $57.60, respectively.

Google (GOOG, news, msgs) and Yahoo (YHOO, news, msgs) fell 2.3% to $338.11 and 5.6% to $13.76, respectively.

Metals and materials stocks led the market overall. Freeport-McMoRan Copper & Gold (FCX, news, msgs) was up 10.1% to $42.60. Monsanto (MON, news, msgs) jumped 9.8% to $81.44 after boosting earnings guidance for the next four years.

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Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$88.95	$90.06	-$1.11	-11.62%	-7.32%
Heating oil (per gallon)	$2.4945	$2.5057	-$0.0112	-12.86%	-5.85%
Natural gas (per million BTU)	$6.7420	$6.7680	-$0.0260	-9.36%	-9.90%
Unleaded gasoline (per gallon)	$2.0298	$2.0628	-$0.0330	-18.31%	-18.51%

What the central banks did

In a unanimous decision, the Fed lowered its federal funds target -- which governs the rate banks charge each other for overnight loans -- by half a percentage point, to 1.5%. The European Central Bank, the Bank of England, the Swedish Riksbank, the Bank of Canada and the Swiss National Bank joined in cutting their rates by half a percentage point.

• Read the central banks' statement

The Fed also lowered its discount rate by half a percentage point, to 1.75%. The discount rate is the rate at which the Fed lends directly to banks and, now, financial-services companies. The Fed has cut the federal funds rate eight times since last September.

Despite the move -- not to mention an $87 billion rescue plan for Britain's banks -- there is still worry that the rate cuts will still not be enough to boost investor confidence and ease the credit freeze.

The banks' announcement came after huge losses in Asian markets on Wednesday and 5% losses or more in Europe. The Nikkei 225 Index ($N225) in Japan fell 9.4% on Wednesday, its biggest percentage loss since the 1987 stock market crash.

Did the rate cuts do much for credit markets? Not yet.

An indicator of how willing banks were to lend to other banks, called the "TED spread," showed high prices of loans between banks. The TED spread measures the difference between the 3-month London interbank offered rate (Libor) and the 3-month Treasury bill. The higher the spread, the bigger the aversion to risk.

The TED spread reached a record 4.02% today before retreating to 3.81%, CNN Money reported. It had dipped as low as 3.46% on Tuesday and was 1.04% a month ago.

Good news for home sales, a tough day for Bank of America

Pending home sales rose 7.4% in August from July, the National Association of Realtors said this morning, indicating that people are starting to get back into the housing market after price plunges.

The trade group said pending home sales rose in all four regions of the U.S.

But the gains were especially strong in California, Nevada and Arizona. Assuming the sales are closed, the data should appear in existing-home sales reports in October and November.

But Bank of America (BAC, news, msgs) shares plunged at the open this morning after the company late Tuesday priced a secondary offering at $22.30, below Tuesday's closing price of $23.77 per share. The price was of the secondary offering was 32% lower than Monday's closing price.

Bank of America shares were down 7% to $22.10 for the day. That was an improvement from early in the day. The stock had dropped to 20.01 right after the open.

Andy Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.640%	0.785%	-0.145	-28.89%	-79.62%
5-year Treasury note yield	2.706%	2.479%	0.227	-9.38%	-21.68%
10-year Treasury note yield	3.715%	3.506%	0.209	-2.93%	-7.93%
30-year Treasury bond yield	4.063%	4.027%	0.036	-5.62%	-8.88%
Currencies
U.S. Dollar Index	81.045	81.220	-0.175	2.12%	5.67%
British pound in dollars	$1.7307	$1.7532	-0.0225	-2.91%	-13.00%
Dollar in British pounds	£0.5778	£0.5704	0.0074	2.99%	14.94%
Euro in dollars	$1.3684	$1.3641	0.0043	-2.96%	-6.38%
Dollar in euros	€ 0.7308	€ 0.7331	-0.0023	3.05%	6.81%
Dollar in yen	99.80	101.54	-1.74	-5.88%	-10.77%
Canadian dollar in U.S. dollars	$0.892	$0.906	-$0.0142	-5.18%	-10.18%
U.S. dollar in Canadian dollars	$1.122	$1.104	$0.0184	5.48%	11.33%
Commodities
Gold	$906.50	$882.00	$24.50	2.92%	8.17%
Copper	$2.3550	$2.5345	-$0.18	-18.20%	-22.56%
Silver	$11.7720	$11.3800	$0.39	-4.10%	-21.10%
Corn	$4.2900	$4.1700	$0.12	-12.00%	-5.82%
Crude oil (NYMEX) (per barrel)	$88.95	$90.06	-$1.11	-11.62%	-7.32%