Wall Street report: Tuesday close

MARKETS slumped in late trading as investors expressed their disappoinment at a decision by Federal Reserve Board chairman Alan Greenspan not to cut interest rates.

The Dow Jones Jones Industrial Average dropped 206.43 points or 2.4% to 8482.46. The Dow had been substantially unchanged when the statement was released. The Nasdaq tumbled 37.52 points or 2.9% to 1269.32

The Fed's rate-setting committee, while saying that it would not change interest rates now, signalled that it could slice rates if the US economy weakens further. 'The current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time,' the Fed said.

'Nonetheless, the committee recognises that, for the foreseeable future, against the background of its long run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness.'

Analysts said some of the selling was tied to disappointment that the Fed did not lower rates, while other investors might have been unsettled that Greenspan had belatedly acknowledged that the US economy was losing steam. Greenspan has been relatively upbeat lately, trumpeting productivity gains while remaining silent on what some economist see as growing risks to the world's biggest economy.

But the situation facing the Fed is anything but straight forward, with some economists warning that cutting rates, already at a 40-year low of 1.75%, would convey a sense of panic to already shaky markets.

The decision helped erode early gains in financial services and techs. Citigroup gave up all its early advance to close down 98 cents or 3% to $33.10.

Leading techs slipped after the decision. Hewlett-Packard, up 5% early, finished the day down fractionally at $13.22. Intel slipped back into the red to be end down 83 cents or 5% to $16.70. Microsoft lost all its momentum to close out the session with a loss of $1.42 or 3% to $47.05

Wal-Mart reported a 26% jump in its sales as consumers gravitated toward discount stores in more uncertain times. Wal-Mart shares managed to cling to a gain of 30 cents or 0.6% at $48.71.

The airline sector remained in the headlines on the heels of the bankruptcy filing by US Airways. AMR, the parent of American Airlines, added 38 cents or 4.6% to $8.74 as it announced it was cutting 7000 jobs or 5.6% of its workforce. US Airways shares, which closed at $2.45 on Friday, remained halted, but one broker said they would go to 'one cent' in the restructuring to follow. Aircraft maker Boeing shed another $3.27 or 8% to $37.23.