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. Last Updated: 07/27/2016

Market in Turmoil as Dow Drops

COMBINED REPORTS


NEW YORK -- Stock prices fell sharply Tuesday in a renewal of the roller-coaster ride that sent the market plunging Friday and then higher in a powerful rally at the beginning of this week.


In general, the market has been hurt by concerns that the Federal Reserve will not cut interest rates anytime soon, something that has hit the bond market hard as well.


The Dow Jones industrial average, the stock market's most widely watched indicator, was down 92.49 points to 5,488.51 by early afternoon. That almost entirely erased Monday's 110.55 point advance, the average's third-biggest point gain ever.


On Friday, the Dow plunged 171.24 points for the third-largest numerical decline in its history, but only a 3 percent drop from its near-record heights.


"It's an aftershock to Friday," William LeFevre, senior market analyst at Ehrenkrantz King Nussbaum Inc., a brokerage firm, said of Tuesday's retreat. "I don't think it's a long-term event."


Don Hays, analyst at Wheat First Securities, said "the Dow vastly overstated the strength in the market [Monday]. ... I think today you are seeing it coming back to reality."


European markets, which had followed Monday's 110-point rally on the Dow in only a half-hearted way during the morning, went back down with it.


"We're being towed along by Wall Street and by developments on U.S. interest rates," said one Frankfurt dealer. "It's making things relatively complicated at the moment."


Frankfurt's IBIS DAX index stood at 2,415.29 in post-bourse trade, down 4.43 points from Monday, after a high of 2,448.30. The FTSE index in London ended down 35 points at 3,639.5 after a morning high of 3,707.8, and dealers there, too, blamed worries about bonds and Wall Street for the decline.


U.S. Treasury bonds, which exert a strong influence over bonds around the world, fell more than three points Friday, went up a little on short-covering Monday, then fell again Tuesday.


Triggering the difficulty Friday was a report showing the economy created 705,000 jobs last month. Traders worried the news would prompt the Federal Reserve to hold off on cutting interest rates.


Lower rates help boost companies' profits and make stocks and bonds more attractive than other interest-bearing investments, like savings accounts. Stocks and bonds fell that day, but recovered a portion of the decline Monday after Wall Street had the weekend to think it over. Even a further bit of good economic news, a report showing that new home sales jumped an unexpected 4.2 percent in January, couldn't stop the buying.


Tuesday was another story.


While there was little specifically to trigger the stock market's selling, LeFevre and others said it was a decline in bond prices that pushed stock prices lower.


The yield on the 30-year Treasury bond, a sensitive indicator for mortgage rate trends, rose to 6.73 percent Tuesday from 6.63 percent late Monday. Its price, which moves in the opposite direction, fell $12.50 for each $1,000 invested.


In economic news Tuesday, the government reported the current account deficit -- the broadest measure of U.S. foreign trade -- increased to $152.92 billion last year, the second worst performance in history, but improved in the final three months of 1995.


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