Gloom over US economy sends stocks tumbling

STOCKS and interest rates tumbled yesterday as investors took a bleaker view of the US economy.

The Dow Jones industrial average fell 265 points, its biggest drop in six weeks, and all the major indexes fell more than 2%.

The yield on the Treasury’s 10-year note fell to its lowest level since March 2009 as investors worried about the economy and avoiding stocks, sought the safety of government securities.

Only 442 stocks rose on the New York Stock Exchange, while 2,627 fell, a sign that investors expect all businesses to suffer if the economy continues to weaken.

Investors’ gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy.

News of slower industrial growth in China and a disappointing economic indicator in Japan helped send stocks plunging first in Asia, then in Europe and the US. China’s industrial growth slowed further in July as Beijing clamped down on a credit boom, fuelling expectations that it will ease monetary policy to shore up its economic expansion.

Meanwhile, inflation spiked up July, adding to pressure on the government to control rising living costs as rapid economic growth slows.

Investors got more bad news after US trading ended. Cisco Systems’ revenue in the latest quarter fell short of analysts’ expectations. Its report could spark more selling today.

Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem for investors is that economic data has been so muddled lately that they have no sense of whether the recovery will hold.

“Uncertainty, uncertainty, uncertainty,” was the way Javier Perez-Santalla, managing director for futures and foreign exchange at the brokerage firm Dinosaur Group, described the mood in the market.

“Everyone is scratching their heads, saying ‘which way?’” he said. “We’re kind of stuck in this no man’s land, where we’re damned if we do, damned if we don’t.”

The Fed said on Tuesday it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans and in turn increase lending and help the economy grow faster.

But the moves were expected to be quite small in comparison to what the economy needs.