Stocks finish lower as investors assess rate cut

NEW YORK -- U.S. stocks fell Wednesday as the government's effort to stave off a deep recession raised worries about mounting public debts and blunted optimism stemming from the Fed's rate cut.

A decline in stock prices was not surprising given that the Dow Jones industrial average rose more than 4% on Tuesday while other indexes gained more than 5% after the central bank lowered its federal funds rate target to a range of zero to 0.25% — the lowest levels on record.

At the close of trading, the Dow was down 99.80, or 1.12%, to 8,824.34. In the broad market, the Standard & Poor's 500 index fell 8.76, or 0.96%, to 904.42 and the Nasdaq composite index fell 10.58, or 0.67%, to 1,579.31.

The Fed's move was an unprecedented one aimed at boosting borrowing and lending. The central bank said Tuesday it anticipates the weak economy will keep the target rate low for "some time," and added that it is mulling the possibility of buying Treasuries — in effect, printing new money. On Wednesday, yields on Treasuries fell yet again to record lows.

"This is a whole lot of new information for people to digest," said David Waddell, senior investment strategist and chief executive of Waddell & Associates. "Now we need time to sit back ... and figure out what it all means."

Meanwhile, a larger-than-expected loss from Morgan Stanley offered fresh evidence of the sizable obstacles the battered financial industry still faces and kept investors on edge. The company posted a loss of $2.37 billion, or $2.34 per share, for the fiscal fourth quarter. The report came a day after rival Goldman Sachs Group posted its first quarterly loss since going public in 1999.

Despite the market's dip on Wednesday, investors have been rather resilient in recent trading sessions, leading some to believe that the market might be entering a period of stability after the unrelenting selling of the past three months.

"I think on balance, we're going to see the equity market trying through this difficult period to price in what things will look like in the second half of 2009," said Michael Strauss, chief economist at Commonfund.