Stock Prices Drop Sharply for 2nd Day

06/06/2006

NEW YORK (AP) - Stocks fell sharply for the second straight session Tuesday, with the Dow Jones industrial average losing more than 100 points and falling below 11,000 for the first time since March. Global markets followed U.S. investors’ lead in abandoning stocks as inflation fears worsened.

The Dow dropped nearly 200 points Monday after Federal Reserve Chairman Ben Bernanke spooked Wall Street by saying that the central bank will remain vigilant in fighting inflation. Investors have been hoping the Fed would stop increasing short-term interest rates after 16 hikes. The nation’s benchmark rate now stands at 5 percent.

In recent months, Bernanke’s comments have repeatedly shaken investors and sent stocks tumbling.

“Bernanke came in with this reputation as a great communicator,” said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. “Most of us would choose to go back to the general confusion (former Fed Chairman Alan) Greenspan created.”


Stocks in most Asian markets fell hard Tuesday, with Tokyo’s Nikkei 225 index down 1.81 percent, while India’s benchmark index fell 2.5 percent and Australian stocks fell 1.6 percent. The major European indexes were all lower in afternoon trading, with Ireland’s benchmark index down 4.60 percent.

In midday trading, the Dow Jones industrial average fell 110.12, or 1 percent, to 10,938.60. The Dow fell 199.15 points, or 1.77 percent, during Monday’s session.

Broader stock indicators were also lower. The Standard & Poor’s 500 index fell 9.57, or 0.76 percent, to 1,255.72, and the Nasdaq composite fell 22.42, or 1.03 percent, to 2,147.20.

Declining issues led advancers by roughly 3 to 1 on the New York Stock Exchange.

Bonds fell, with the yield on the 10-year Treasury note rising to 5.04 percent from 5.02 percent late Monday. The U.S. dollar was up against other major currencies, while gold prices were lower.


Crude oil futures were sharply lower. A barrel of light crude was quoted at $71.46, down $1.14, in trading on the New York Mercantile Exchange.

In company news, Federated Department Stores (FD) Inc. fell $1.31 to $70.57 after it said its audit committee has decided to restate the statement of cash flows for the year ended Jan. 28 after communications with the Securities and Exchange Commission staff. The retailer, which owns department stores, said in a filing with the SEC that it would reclassify proceeds from sales of credit card receivables.

Hewlett-Packard Co. fell 47 cents to $31.12 after the company revised its full-year outlook upward, thanks to a favorable tax settlement with the U.S. government. The forecast nonetheless still fell short of analysts’ expectations.

IBM Corp. fell 34 cents to $78.72 after the technology company said it would triple its investments in India to $6 billion over the next three years. Chairman and Chief Executive Sam Palmisano said the investment will be used to build service delivery centers in Bangalore, India’s technology hub, and create telecommunications research and innovation center for IBM’s telecom clients around the world.

Shares of Imclone Systems Inc. (IMCL) fell $2.65 to $37.41 after analysts downgraded the stock, reacting to late-stage clinical trial results that was not as positive as observers expected.

Volume on the New York Stock Exchange came to 805.81 million shares, up from 527.22 million at the same time Monday.

The Russell 2000 index of smaller companies fell 9.71, or 1.36 percent, to 704.21.

Britain’s FTSE 100 was down 1.60 percent, Germany’s DAX index was down 2.11 percent, and France’s CAC-40 was down 2.40 percent.