Stocks fall amid doubts about economy’s health

NEW YORK – Wall Street’s growing pessimism about the economy sent stocks down for a second straight day Friday, as investors lost the enthusiasm that followed Wednesday’s Federal Reserve decision to leave interest rates unchanged.

The market was caught off guard Thursday by a report from the Federal Reserve Bank of Philadelphia that showed regional manufacturing activity fell to a negative reading for the first time in more than three years. Prior to the manufacturing data, the Dow Jones industrial average had been within 100 points of its January 2000 high of 11,722.98 following the Fed’s widely expected decision on short-term interest rates.

“I think the markets are all of a sudden worried about slower growth,” said Dean Junkans, chief investment officer for Wells Fargo Private Client Services. “I wouldn’t put as much emphasis on one number as the market seems to have done in the last couple days,” he said, referring to the Philadelphia Fed figure.

Junkans contends the markets have overreacted to the Philadelphia data and were perhaps looking for a reason to pause after posting strong gains in September.

“If you’re looking to take some profits that number probably gave you a reason to do that,” he said.

The Dow closed down 25.13, or 0.22 percent, at 11,508.10, having dropped nearly 80 points Thursday.

Broader stock indicators also fell. The Standard & Poor’s 500 index was down 3.25, or 0.25 percent, at 1,314.78 and the Nasdaq composite index fell 18.82, or 0.84 percent, to 2,218.93.

Bonds jumped sharply, with the yield on the benchmark 10-year Treasury note falling to 4.59 percent from 4.64 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Oil settled down $1.29 at $60.30 a barrel on the New York Mercantile Exchange after falling earlier in the week following a report showing a jump in U.S. distillate supplies.

The Philly Fed report deflated a market that had surged higher Wednesday, optimistic after the Fed had left rates unchanged.

There was already uneasiness in the market about the Fed having possibly slowed the economy too much with its 17 straight increases starting in June 2004, and the Philadelphia report added to investors’ disquietude.

The Dow ended the week down 0.22 percent, the S&P 500 index was off 0.25 percent and the Nasdaq fell 0.84 percent.

The market, always anxious to see the latest economic data, will likely be more hypersensitive than usual to next week’s reports, particularly the Conference Board’s consumer confidence index on Tuesday and the Chicago purchasing managers index, a measure of midwestern manufacturing activity, on Friday.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.69 billion shares, compared with 1.62 billion traded Thursday.

The Russell 2000 index of smaller companies was down 8.50, or 1.17 percent, at 718.63.

Overseas, Japan’s Nikkei stock average closed down 1.26 percent. Britain’s FTSE 100 closed down 1.26 percent, Germany’s DAX index was down 1.32 percent, and France’s CAC-40 was down 1.27 percent.