Wall Street report: Monday close

THE probability of another stab at reviving the US economy by Alan Greenspan and his colleagues on the Federal Reserve Board was not enough to prevent Wall Street slipping below key levels.

The Dow Jones Industrial Average, which had run up 20% from its September lows, surrendered the 10,000 level by falling 128.01 points or 1.3% to 9,921.45. The Nasdaq Index, 40% off its September lows, retreated from 2,000, dipping 29.14 points or 1.4% to 1,992.12.

The Federal Reserve meets today (Tuesday) and bond markets predict another 0.25% rate cut at 100%. An announcement is expected at 7.15 pm London time. The cut, which would be the eleventh this year, would bring the key Federal Funds Rate to 1.75%, its lowest level since John F. Kennedy was in the White House.

But interest rate cuts, a tax cut and the promise of a $100bn (£65bn) economic stimulus package have failed to lift the US economy out of a recession which began officially in March. Economists fear that, with Europe and Japan also in decline, the US might struggle to right itself in the wake of the 11 September attacks and the ongoing war on terrorism.

Stephen Roach, the chief economist at Morgan Stanley who has a strong track record in forecasting the twists and turns of the US economy, said he did not see the snapback or 'V' recovery that the markets seemed to have assumed.

He sees a 'difficult' recovery in the US and Europe with the danger that 'we could re-emerge from recession and slip right back into recession.' Regarding the markets, he said that investors may have staked too much on a rapid recovery in company profits. 'There is an earnings situation which remains unresolved,' he said. 'It is still uncertain how strong the recovery will be in profits.'

Tom McManus, market strategist at Banc of America Securities, recommended clients cut their exposure to shares. He cut the share portion of the firm's model portfolio to 55% from 60%. 'The market's progress since the market lows of 21 September seems excessive, given the challenging environment,' he added.

The Dow would have been much weaker had not General Electric's new chief executive Jeffrey Immelt not forecast that his company, the biggest in the world by market value, would continue to increase profits by 10% in 2002 'and beyond.' The brave forecast lifted GE's shares early in the day, but they fell 35 cents or 0.9% to $36.80 by the close. Boeing, which also helped limit losses early in the day, finished down 40 cents or 1% to $36.90. McDonald's was up slightly at $27.02.

Media shares were among the hardest hit on fears that advertising is weakening further into the holiday season. Walt Disney was marked down 72 cents or 3.2% to $21.63. MTV and CBS TV network owner Viacom slumped $4.09 or 9% to $41.51 on suggestions it could face asbestos liability claims through its Westinghouse Electric subsidiary.

Techs leaders generally held their ground early before succumbing by day's end to what was described as profit-taking. Microsoft fell 77 cents or 1.1% to $67.06. Intel shed 29 cents or 0.9% to $32.95. Cisco Systems, which has doubled from its 21 September lows, lost 42 cents or 2% to $20.74. Hewlett-Packard dipped 52 cents or 2.2% to $23 after its biggest shareholder voted to oppose the proposed $23bn merger with Compaq Computer. Shareholders have generally given thumbs down to the merger with struggling Compaq, which tumbled $1.62 or 14% to $9.70 on the prospect that the deal would collapse.

Enron, the energy trader that declared bankruptcy two weeks ago, rose four cents or 5% to 79 cents on reports Citigroup and UBS would bid for its enegy trading assets. Halliburton, the oil services company once headed by US Vice President Dick Cheney, recovered $2 or 17% to $14. The stock fell 42% drop on Friday after it emerged that the firm faced a liability from an asbestos court case.