Wall Street finishes lower as investors grapple with economic woes, impact of Fed rate cut

Source: Agencies  |   2008-12-18  |     ONLINE EDITION

WALL Street finished moderately lower yesterday, as further signs of economic deterioration dampened investors' earlier enthusiasm about the Federal Reserve's record interest rate cut.

Stocks declined in the early going after a larger-than-expected loss from Morgan Stanley offered fresh evidence of the sizable obstacles the battered financial industry still faces. The company posted a loss of US$2.37 billion, or US$2.34 per share, for the fiscal fourth quarter. The report came a day after rival Goldman Sachs Group Inc. posted its first quarterly loss since going public in 1999.

Some selling had been expected after Tuesday's huge rally in which the Dow Jones industrial average rose more than 4 percent and other indexes gained more than 5 percent. The moves came after the central bank lowered its federal funds rate target to a range of zero to 0.25 percent - the lowest levels on record.

But after briefly moving into positive territory, stocks struggled to hold on to the big gains logged the day before as investors grappled with signs of a worsening economy, including more layoffs, and the magnitude of the Fed's actions.

"This is a whole lot of new information for people to digest," said David Waddell, senior investment strategist and chief executive of Waddell & Associates. "Now we need time to sit back ... and figure out what it all means."

Some investors also likely took the Fed's sharp rate cut as an indication of how dire the global financial crisis and economic troubles really are.

The Fed's move was an unprecedented one aimed at boosting borrowing and lending. The central bank said Tuesday it anticipates the weak economy will keep the target rate low for "some time," and added that it is mulling the possibility of buying Treasuries – in effect, printing new money.