Stocks drop despite Greenspan's assessment of economy

AP Business WriterNEW YORK (AP) -- Wall Street wobbled again Tuesday, dropping sharply at the opening, stabilizing on soothing words from Federal Reserve Chairman Alan Greenspan and then falling sharply again in late afternoon amid investors' continuing anxiety about the market's own dynamics.

The Dow Jones industrials closed its seventh straight losing session down more than 160 points, a slight improvement over an earlier loss of 232, while the tech sector gave up a respectable gain and also finished lower.

"People are just fed up. ... It is a very emotional market," said Barry Hyman, chief investment strategist at Ehrenkrantz King Nussbaum.

Investors remained very nervous after eight weeks of heavy selling, including big price swings Monday, when the Dow fell as 439 before recovering to a loss of 45 by the close.

The Dow finished Tuesday down 166.08, or 1.9 percent, at 8,473.11, according to preliminary calculations. The Dow has fallen more than 900 points in seven straight losing sessions, four of which have been marked by triple-digit drops.

The market's broader indicators were also lower. The tech-heavy Nasdaq composite index slipped 7.34, or 0.5 percent, to 1,375.28. The Standard & Poor's 500 index fell 16.99, or 1.9 percent, to 900.94.

Greenspan told the Senate Banking Committee the economy is on its way to full recovery, although it will keep feeling the effects of last year's recession. Greenspan also said the Fed will not start raising interest rates until the economy shows further strengthening.

Greenspan's words temporarily heartened investors who have been worried about companies' second-quarter earnings and outlooks for the remainder of the year.

But investors were still mindful of their concerns about earnings and a series of corporate bookkeeping scandals, and they were unable to overcome their case of nerves as the afternoon wore on. Such worries have led to eight straight losing weeks.

At this point, Wall Street's huge losses are themselves helping to drive stocks lower, analysts said.

The market "tends to feed on itself on the downside just as it fed on itself on the upside for seven years," Hyman said.

Caterpillar dropped $2.19 to $43 after its second-quarter earnings missed analysts' forecast by 15 cents a share.

And, General Motors fell $2.02 to $45.90 despite posting second-quarter earnings that were 21 cents a share higher than analysts were expecting. GM added to losses from last week when several brokerages downgraded the stock, citing among their reasons concerns about the company's ability to fund its pension plan.

Intel, due to release earnings later in the day, declined 76 cents to $18.36.

But Johnson & Johnson rose $1.10 to $50.10 on second-quarter earnings that exceeded analysts' expectations by 2 cents a share.

Analysts expect investors to continue their retreat from the market until they see earnings growing again. While companies are reporting second-quarter earnings in line with or above analyst expectations, the numbers so far haven't been enough to shake the market out of its slump.

"As the improving economy shows improving profits, that is what will get investors' attention," said Ronald J. Hill, investment strategist at Brown Brothers Harriman & Co.

Analysts attributed blue chips' recent losses, larger than those in the long-battered tech sector, mostly to relatively high prices. While tech prices have been crumbling all year, blue chips have fared better and have enjoyed more rallies. So far this year, the Nasdaq is down about 29 percent, while the Dow is off 15 percent.

"The blue chips for the longest time stayed above water," as far as earnings go, said Joseph V. Battipaglia, chief investment officer at Ryan, Beck & Co., LLC. "And, only now are there concerns about their valuations being sustained or earnings turbulence."

Declining issues led advancers 4 to 3 on the New York Stock Exchange. Volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, fell 1.81, or 0.4 percent, to 407.27.

Overseas, markets were mixed Tuesday. Japan's Nikkei stock average closed down 1.2 percent. In Europe, France's CAC-40 slipped 0.2 percent, while Britain's FTSE 100 rose 0.7 percent, and Germany's DAX index climbed 1.7 percent.

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