Stocks Slip on Anthrax Scare, Greenspan Testimony

Stocks fell sharply Wednesday, led by technology shares, as mounting fears over the potentially deadly anthrax bacteria and a cautious outlook from Fed chairman Alan Greenspan overshadowed upbeat earnings news.

The technology-packed Nasdaq Composite Index slumped 75.71 points, or 4.4 percent, to 1,646.36, its biggest drop in percentage terms since April 23.

The Dow Jones industrial average fell 151.26 points, or 1.61 percent, to 9,232.97 after rallying more than 1 percent earlier, while the broader Standard & Poor's 500 Index dropped 20.45 points, or 1.86 percent, to 1,077.09.

The market got an initial boost after International Business Machines Corp. and Intel Corp. posted solid results, but news congressional buildings will be screened for environmental hazards amid deepening fears of biological warfare quashed the rally.

"This health scare -- this terrorist threat -- is now taking front and center. It's overwhelmed any sense of a bottoming or stabilization," said Graham Tanaka, president of Tanaka Capital Management, which oversees $145 million. "The market had been encouraged that IBM and Intel made their numbers. The market expected worse."

Wall Street jitters squashed an early enthusiasm over two technology bellwethers. Indexes jumped at the open after IBM and Intel brightened Wall Street's mood with quarterly earnings that matched or topped forecasts.

Late Tuesday, Intel and IBM reassured investors with their quarterly reports. Intel said earnings tumbled 77 percent amid the global economic downturn, but the world's largest computer chip maker still met expectations. International Business Machines, the world's largest computer company, reported a drop in earnings but squeaked past estimates and said profits for the fourth quarter were on track.

IBM managed to hold onto a gain of $1.05 to end at $102.90, but Intel fell 39 cents to $24.57 as investors shunned the computer chip sector. The Philadelphia Stock Exchange's semiconductor index fell more than 7 percent.

In a testimony to Congress, Greenspan said consumers and businesses have tightened purse strings after the Sept. 11 attacks on the nation that left more than 5,000 people dead. The Fed chief stressed the uncertainty of the immediate economic outlook but expressed hope the economic impact has been a one-time and likely temporary event. 

Investors, many of whom believe the economy has already slipped into a recession, fully expect the Fed to cut interest rates again at its next policy meeting on Nov. 6. A poll conducted by Reuters early this month found nearly three-quarters of primary dealers of U.S. government securities expecting the Fed to cut its benchmark federal funds rate to 2.0 percent by year-end, from its present level of 2.5 percent.

Corporate scorecards are raining down on Wall Street this week, the most hectic period of the third-quarter earnings season. Analysts are predicting corporate profits will suffer their worst drop in a decade, and investors are pouncing on any positive surprises amid the forecasts of gloom. 

"As we move forward to 2002, people are starting to say, 'You know what? Things are starting to look up a bit,''' said Noah Blackstein, a portfolio manager at Dynamic Power American Fund, which oversees $230 million. ``You have to ask whether the economy is going to get better or worse six months from now. It's almost impossible to say it's going to get worse.''

Top banking companies Citigroup Inc. rose 91 cents to $47 and J.P. Morgan Chase & Co. Inc. climbed $1.62 to $35.56 -- both boosting the blue-chip Dow average. The companies posted sharp declines in profits as the sluggish economy and last month's attacks on New York battered revenues at their Wall Street businesses.

But investors did not respond kindly to all earnings reports.

AOL Time Warner Inc., the world's largest Internet and media company, fell $1.50 to $32. The company reported a wider quarterly net loss, but said its cash earnings, which exclude a range of costs, rose as cable and Internet subscriber growth offset a sharp downturn in advertising.

EMC Corp., the world's top maker of data-storage systems, fell $1.51 to $11.94. The company reported its first quarterly loss in a dozen years as it took an $825 million restructuring charge and warned it did not expect to turn a profit until the second half of next year.

Drugs giant Eli Lilly & Co. fell $3.49 to $75.51 after a key U.S. panel split over whether to recommend approval of Lilly's treatment of sepsis, a condition that kills about 215,000 Americans each year after they suffer a severe bacterial infection.

Declining issues outnumbered advancers nearly 3 to 2 on the New York Stock Exchange. Volume came to 1.13 billion shares, ahead of the 941.57 million shares traded at the same point Tuesday. 

The Russell 2000 index, which measures the performance of smaller company stocks, fell 5.24 to 429.29. 

Overseas markets were higher Wednesday. Japan's Nikkei stock average ended the day with a gain of 1.1 percent. Germany's DAX index rose 0.3 percent, while France's CAC-40 and Britain's FT-SE 100 each climbed 2.4 percent.

Reuters and the Associated Press contributed to this report.