Gloomy report hits stocks

US STOCKS fell sharply yesterday afternoon on a disappointing economic report, a warning from entertainment conglomerate Walt Disney and an investment firm's prediction that the Federal Reserve will be forced to cut interest rates

Around 1.40pm ET, the Dow lost 191.48 to 8,315.14. The Nasdaq composite fell 31.19 to 1,248.81. The Standard & Poor's 500 index declined 19.22 to 865.44.

“We have a lot of factors at play here. It’s an accumulation of all the negative economic news this week, capped off by the jobless data this morning, the two-year note yield declining so sharply as bonds are rallying and weak forecasts out companies,” said Donald Selkin, director of research at Joseph Stevens. “But what really accelerated the selling in the last hour or so was the note out of Goldman Sachs about the Fed.”

Around midday, Goldman Sachs issued a note saying that due to the increased slowdown in the markets and the economy, Fed officials are likely to ease rates by three-quarters of a percentage point in the fourth quarter.