Stocks End Lower after Fed Cuts Rates

The Federal Reserve left room for more easing in October, disappointing investors who hoped a bottom and recovery were near

U.S. stocks finished solidly lower Tuesday, after the Federal Reserve lowered a key interest rate for the seventh time this year in an attempt to revive a stalled economy. The Fed suggested that more rocky economic times and interest rate easing are likely ahead.

"Beware of more market turmoil before it's over," warns David Blitzer, chief investment strategist at Standard & Poor's.

Many observers were hoping Tuesday's Fed action would mark the last of easings for this year and thus signal the beginning of a recovery. But the Federal Open Market Committee (FOMC), the Fed's policy-making arm, had more bad economic news to contend with, leaving the possibility for further easing at the group's next meeting on Oct. 2.

"The Fed left the door open for another rate cut, and the market is a little disappointed," says Peter Cardillo, chief strategist with Westfalia Investment.

And while the FOMC, in comments similar to those made in June, noted declining profits, the Fed took its comments a step further on Tuesday and noted more cuts in capital spending and a global economic slowdown.

The FOMC slashed its key Fed funds rate target by 25 basis points to 3.5% -- the lowest level since March, 1994. The FOMC also lowered its largely symbolic discount rate by 25 basis points, to 3%. Since the first easing on Jan. 3, the Fed has cut rates by a total of 300 basis points.

Earlier Tuesday, even noted stock market bull Abby Joseph Cohen, Goldman Sachs' chief market strategist, cut her yearend target for the Standard & Poor's 500 index to 1,500 from 1,550.

Economic news aside, some big-name retailers were among Tuesday's stocks in the news. Women's apparel chain Talbots Inc. (TLB ) reported a 22% rise in fiscal second-quarter profits, slightly higher than forecast, due to successful efforts to control inventory and expenses.

Staples Inc. (SPLS ), the No. 2 U.S. office products retailer, said fiscal second-quarter profits fell 5.5%, in line with Wall Street expectations, despite higher sales and a quarterly profit at its Internet division.

Among technology companies in the news, electronics testing equipment maker Agilent Technologies Inc. (A ) said Monday after the close that it would cut 9% of its staff and reported a loss as it attempts to restructure amid continued weak demand.

The Dow Jones industrial average ended down 148.76 points, or 1.44%, to 10,171.31. The Nasdaq Composite lost 50.04 points, or 2.66%, to 1,831.31. Meanwhile, the broader S&P 500 was off 14.14 points, or 1.21%, to 1,157.27.

Treasury Market

U.S. Treasuries finished higher, after Tuesday's FOMC meeting and decline in equities. Later in the week, traders will eye data on new jobless claims for the week ended Aug. 18, new home sales, and durable goods orders.

World Markets

European stocks ended higher ahead of the U.S. Federal Reserve's interest rate decision Tuesday afternoon. Swiss drug giant Novartis buoyed sentiment with positive comments about its drug for complications related to cancer, Zometa, which received U.S. marketing approval on Monday.

In London, the Financial Times-Stock Exchange 100 index gained 72.90 points, or 1.36%, to 5,430.30, following a report that business investment grew 0.8% in the second quarter after falling 5% in the first quarter. Germany's DAX index added 8.28 points, or 0.16%, to 5,216.11. And France's CAC 40 was up 43.44 points, or 0.91%, to 4,834.87.

In Asia, markets finished mixed. The Nikkei 225 gained 22.44 points, or 0.20%, to 11,280.38, as it rebounded from Monday's record low. Hong Kong's Hang Seng lost 18.35 points, or 0.16%, to close at 11,440.35.

By Heesun Wee and Amy Tsao in New York

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