Rate Cut News Makes for Mixed Day in Stocks

Blue-chip stocks had a mixed session Tuesday, pulling back from early gains as Federal Reserve policymakers opted for a go-slow approach in fighting the global economic crisis with lower interest rates.

The Dow Jones industrial average, which was up about 15 points as the Fed concluded its latest rate strategy meeting at midafternoon, finished 28.32 points lower at 8,080.52, after having slid as much as 93.21 points earlier in the session.

Broader market indicators finished mixed after the central bank announced that it was lowering one of its key lending rates by a quarter of a percentage point, in the first such reduction in nearly three years.

“There were some players who were betting on a bigger cut, and they expressed their disappointment in the first few minutes,” said Charles G. Crane, chief market strategist for Key Asset Management in Cleveland. “But if one steps back from the fray for a moment, one sees a stock market that is reasonably valued with interest rates where they are, even if there’s anticipation that earnings will be weak next year.” Crane said that even with this month’s 700-point rebound, the Dow still is more than 1,250 points, or 13.5%, below its peak of 9,337.97, reached July 17.

On Monday, the Dow gained 80 points, but the broad market struggled amid worries over whether the expected small cut in lending rates would stimulate enough economic activity to make a difference in the financial crises in Asia and Russia.

Many observers say it would take a sharper cut in Fed rates to provide the economic and psychological boost needed to bolster the domestic economy and stabilize the global situation.

Between the continuing stream of news of unsettling developments overseas and Wall Street’s convulsive reactions, Americans have grown worried about the nation’s financial health. Those worries could compound the problem if consumers curb their spending, because that activity accounts for two-thirds of the country’s economy.

The Conference Board, a private research group, reported Tuesday that its measure of consumer confidence fell for the third straight month in September, suffering the biggest drop since January.

The prospect of consumers’ saying just before the holiday season that they may be spending more cautiously weighed heavily on businesses that depend on consumer sentiment. Wal-Mart Stores fell $3.81 to $57.63, making it the Dow’s biggest decliner, and Goodyear Tire & Rubber slid $3.75 to $52 after warning of weak business results.

The Dow was also weighed down by its two oil components: Chevron fell $3.25 to $88, and Exxon fell $3.19 to $71.25.

The Standard & Poor’s 500-stock index rose 0.33 point to 1,049.02, and the technology-heavy Nasdaq composite index fell 5.17 points to 1,734.05.

Declining issues barely outnumbered advancers on the New York Stock Exchange.

The NYSE composite index rose 0.25 point to 518.28.

The Russell 2,000 index of smaller stocks fell 2.21 points to 365.80.

Bond prices rose after the rate cut, as investors sought the relative safety of Treasuries amid uncertainty about the direction stocks would take. The yield on the benchmark 30-year T-bond fell to 5.09% from 5.15% on Monday.

The dollar stayed lower against the Japanese yen after the rate cut amid speculation that industrialized nations will act together to boost the Japanese currency. The dollar was 1.40 yen lower at 134.45 in late New York trading.

Stocks that will be included in the S&P; 500 index after the close of trading today gained. Stocks of companies added to the index often rise , because mutual funds whose portfolios match the makeup of the S&P; 500 will be buying the shares.

Union Planters gained $3.75 to $51.13, BMC Software gained $2.63 to $59.06, PeopleSoft rose $2.19 to $33.50 and AES climbed $4.75 to $38.25.

Among Tuesday’s other highlights:

* ESC Medical Systems tumbled $8.13 to $6.50 after the medical-device maker said third-quarter earnings will be about half the 50 cent-a-share forecast because of weak sales in Europe and South America. The stock has lost 71% of its value in four sessions.

* Micron Technology, the world’s No. 2 maker of computer-memory chips, fell $2.25 to $31.63 after reporting that it lost money for a third consecutive quarter because of slumping prices.

* Micron Electronics, the No. 3 direct seller of personal computers, rose $1.19 to $18.13 after reporting better-than-expected fiscal fourth-quarter earnings on strong sales.

* U.S. Home, the sixth-largest U.S. home builder, declined $2.88 to $29.31 after warning that third-quarter earnings will fall short of expectations because of construction delays.

-FirstPlus Financial Group fell for a second day, $3.19 to $11.88. Chief Financial Officer William Benac blamed the declines on “incorrect data.” Merrill Lynch analyst Michael Hughes downgraded the home equity lender to short-term “neutral” this morning while maintaining a long-term “buy” recommendation on the stock. The possibility of curtailed lines of credit from FirstPlus lenders was cited as the reason for the rating change.

In commodities trading, concern about damage to the U.S. cotton crop from Hurricane Georges eased, pushing cotton prices lower, but sentiment about production disruptions and refinery damage from the storm sent gasoline and crude oil prices higher. Cotton for delivery in December tumbled 1.46 cents to close at 72.91 cents a pound.

Crude oil for November delivery ended at $15.98 a barrel, up 34 cents. October heating oil rose 0.13 cent to 41.86 cents a gallon, while October gasoline ended up 0.45 cent at 46.27 cents a gallon.

Overseas, Tokyo’s Nikkei stock average fell 0.6%, Frankfurt’s DAX index fell 1.6% and London’s FT-SE 100 rose 0.3%.

Market Roundup, D10