NEW YORK (Reuters) - Recession worries pushed U.S. stocks lower on Tuesday, but the decline was shallower than feared at first as an emergency interest-rate cut by the Federal Reserve helped ease investor fears and stabilize global markets.
Declines were fairly broad-based, with Procter & Gamble Co, the world’s largest household products company, down 2.4 percent at $65.51, and Exxon Mobil, down 2.5 percent at $82.98, among the biggest falling shares in both the Dow industrials and S&P 500. Exxon Mobil is the largest publicly traded U.S. oil company.
But investors bought financial stocks, which benefit from lower borrowing costs, as well as retailers. The financial sector was among the S&P 500’s major gainers, while retailers led gains on the Dow.
Shares of Bank of America Corp rose 3.4 percent to $37.19.30. The second-largest U.S. banking company reported a 95 percent drop in quarterly earnings, but its CEO said he does not expect to cut the bank’s dividend.
“We’re not out of the woods yet ... We’re still down on the day ... (but) clearly the Fed rate-cut move was well received by traders this morning,” said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. “At least it was an attempt by the Fed to get in front of the negativity.”
The Dow Jones industrial average was down 136.40 points, or 1.13 percent, at 11,962.90. The Standard & Poor’s 500 Index was down 13.92 points, or 1.05 percent, at 1,311.27. The Nasdaq Composite Index was down 40.19 points, or 1.72 percent, at 2,299.83.
Home builders also were in positive territory after the Fed cut interest rates by 75 basis points in an unusual decision between its regularly scheduled policy meetings. The Federal Open Market Committee is set to meet next Tuesday and Wednesday.
The U.S. central bank’s move followed two days of steep losses in Asian and European equities on worries that a deteriorating U.S. economy would drag other regions down with it.
U.S. Senate Majority Leader Harry Reid said legislation to stimulate the U.S. economy could be sent to President George W. Bush within three weeks.
The Dow was down almost 465 points at its session low, while the Nasdaq, within minutes of the opening bell, dropped to a level indicating it had crossed the threshold of what is considered a bear market — a fall of 20 percent from its October closing high.
Overseas stock losses were sharp on Monday when U.S. markets were closed for the Martin Luther King Jr. holiday, and the rout resumed on Tuesday until the Fed rate cut, which helped Latin American markets to rise and allowed the pan-European FTSEurofirst 300 index to end up 1.9 percent.
The Fed’s action took the key federal funds rate, which governs overnight lending between banks, down to 3.5 percent, its lowest level since September 2005. The Fed also lowered the discount rate it charges on direct bank loans to 4 percent.
The S&P index of retailers climbed 4.9 percent, the Dow Jones U.S. home construction index gained 4.7 percent, while the S&P financial index advanced 2.2 percent.
The price of U.S. oil futures dropped below $90 a barrel, weighing on Exxon Mobil and rivals ConocoPhillips, down 2.1 percent at $71.35, and Chevron, down almost 2 percent at $81.80. Oil prices, however, had risen off session lows after the Fed’s rate cut spurred hopes that it will help the U.S. economy and keep demand for oil strong.
The heaviest weight on the Nasdaq was iPod and iPhone maker Apple Inc, down 2.5 percent at $157.35.
Editing by Jan Paschal