Stocks Close Lower After Earlier Rally

Stocks ultimately dropped after a dire forecast from the Federal Reserve.

Oct. 29, 2008— -- The stock market continued bouncing up and down today, through a mountain range of peaks and valleys, as the Federal Reserve cut a key interest rate.

After triple-digit gains earlier in the day, the Dow fell 74.16 points to close at 8,990.96, down less than one percent. The tech-heavy Nasdaq, meanwhile, gained 7.74 points, or nearly half a percentage point, to close at 1,657.21. The S&P 500 dropped more than 10 points, or just over 1 percent, to close at 930.08.

Investors, banking on a half-percent rate cut in the federal funds rate, sent U.S. stock markets soaring yesterday, with the Dow Jones having the second-biggest point gain on record.

But today's announcement that the funds rate would be dropped to 1 percent, the lowest since June 2004, was accompanied with a rather dire assessment of the economy by the nation's central bank.

"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," said the statement from the Federal Open Markets Committee, which sets interest rates.

The bankers added that the turmoil in the financial markets is likely to lead to an even greater cutback in consumer spending and warned that the risks to economy remain.

Stocks briefly dropped into negative territory after traders digested the statement, and then soared, only to plunge late: in the last ten minutes of the trading session, the Dow dropped more than 300 points.