Wall Street pulls back

Wall Street headed for another volatile session Wednesday as investors questioned whether an emergency interest rate cut would revive credit markets that have been stagnant for weeks.

Investors were initially encouraged after central banks including the Federal Reserve cut interest rates in a coordinated effort aimed at restoring confidence in the market and help end the global financial crisis. But their enthusiasm faded as they realized a rate cut doesn't guarantee that businesses and consumers will have an easier time obtaining credit anytime soon.

Global markets initially spiked after the the interest rate cut. However, ahead of the opening bell in the U.S., stocks and futures pulled back - a sign that investors realize that credit markets and the economy remain extremely troubled and are likely to remain so for some time, especially since rate cuts can take months to work their way through the economy.

"With all of this occurring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."

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The Fed noted in a statement that the market turmoil posed a further threat to an already shaky economy; it was joined in the rate cut by banks including the European Central Bank, Bank of England, The Bank of Canada, the Swedish Riksbank and the Swiss National Bank.

Dow Jones industrial average futures fell 190, or 1.99 percent, to 9,348. Standard & Poor's 500 index futures fell 19.80, or 1.97 percent, to 986.00, while Nasdaq 100 futures dropped 33.75, or 2.53 percent, to 1,302.75.

European indexes, which were down about 5 percent before the rate cut, pared some of their losses. In Britain, the FTSE-100 fell 1.43 percent, Germany's DAX dropped 2.55 percent, and France's CAC-40 dropped 1.95 percent.

In Asia, the Nikkei 225 closed 9.38 percent lower and Hang Seng tumbled 8.17 percent hours before the rate cuts were announced; their declines showed the extent of the worldwide gloom.

"The credit market is still tight, there's no money out there," said Todd Leone, managing director of equity trading at Cowen & Co. "Everything the Fed is doing will eventually help, but people have to realize that it will take some time and that the economy is going to get worse during the next few months."

Investors had been extremely anxious in recent days for a rate cut, and while the Fed had taken other steps this week to try to ease the stagnant credit markets, including buying commercial paper, the short-term debt used by companies, its moves weren't enough to stanch losses that have taken the Dow Jones industrials down 875 points in just two days this week.

It is very likely that stocks won't begin to recover for good until investors are certain the credit markets are functioning in a more normal fashion. But there are also severe economic problems including heavy job losses and high unemployment that will also need to show improvement.

Credit has all but dried up in the weeks after the failure of Lehman Brothers Holdings Inc. Banks have been reluctant to lend for fear they won't be paid back. That in turn has been stifling the economy, and led to the huge plunges on Wall Street in recent weeks.

Demand for short-term Treasurys remained high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place. The yield on the three-month Treasury bill, which moves opposite its price, dropped to 0.53 percent from 0.81 percent late Tuesday.

Investors also bought up longer-term Treasury bonds, which don't draw as much demand in times of fear. The yield on the 10-year note fell to 3.48 percent from 3.51 percent late Tuesday.

The first third-quarter earnings reports are showing signs of strain on companies, and that is adding more uncertainty to the stock market. After the close Tuesday, Alcoa Inc. said it would conserve cash by suspending its stock buyback program and all non-critical capital projects. The aluminum company's earnings fell 52 percent.

(Copyright 2008 by The Associated Press. All Rights Reserved.)