Wall Street recoiled again Thursday, sending stocks lower for a second day after Cisco Systems Inc. reported slumping demand and retailers turned in generally weak sales for October. Concerns about widespread economic weakness sent the major stock indexes down more than 3.5 percent, including the Dow Jones industrial average, which tumbled 400 points.
Comments from Cisco that it saw a steep drop in orders in October and reports from retailers that consumers are skipping trips to the mall provided fresh evidence of the economy's struggles. While Wal-Mart Stores Inc. benefited from bargain-seekers, some specialty retailers posted big drops in monthly sales.
Adding to investors' list of worries, the Labor Department said the number of people continuing to draw unemployment benefits jumped to a 25-year high, increasing by 122,000 to 3.84 million in late October. It marked the highest level since late February 1983, when the economy was being buffeted by a protracted recession.
While new claims for unemployment benefits dipped by 4,000 to a seasonally adjusted level of 481,000 last week, the levels remain elevated. The findings added to the market's unease ahead of Friday's October employment report, a widely watched barometer of the economy's health.
"I think everybody kind of simultaneously - the consumers and businesses - is tightening belts so that's triggering a reasonably precipitous slowdown that's widespread," said Ed Hyland, global investment specialist at J.P. Morgan's Private Bank. "This is something that we haven't really seen, this level of this rapid and significant pullback both in the market and the economy."
Still, the market's two-day slide follows an enormous run-up since last week so some pullback was expected, analysts said. Through the six sessions that ended Tuesday, the benchmark Standard & Poor's 500 index, surged 18.3 percent.
Richard Campagna, chief investment officer at Provident Investment Counsel in Pasadena, Calif., contends the market's pullback isn't surprising given the enormity of the recent run-up. He said the weak economic readings shouldn't come as a surprise given a freeze in credit markets that has disrupted lending and other economic activity since September.
Campagna said the light volume and overall fear among investors is exacerbating the market's volatility.
"Some people are pushing this market around more than they should be out of fear," he said. Many everyday investors are sitting on the sidelines, he said. "Everyone has been shellshocked with the moves in the market."
In early afternoon trading, the Dow fell 411.54, or 4.50 percent, to 8,272.73. The blue chips had been fallen as much as 435 in the session but remains above its Oct. 10 trading low of 7,882.51.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 45.09, or 4.73 percent, to 907.68, and the Nasdaq composite index fell 65.75, or 3.91 percent, to 1,615.89.
The Russell 2000 index of smaller companies fell 16.45, or 3.20 percent, to 498.19.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 700.8 million shares.
On Wednesday, Wall Street plunged as investors again considered how difficult a U.S. recession President-elect Barack Obama will face in January when he is sworn in. After a string of huge gains in stocks, jitters returned to the market, driving the Dow down nearly 500 points. All three major indexes dropped more than 5 percent.
The latest round of economic worries largely overshadowed interest rate cuts by central banks in Europe as stocks there tumbled after the moves. The Bank of England slashed its key interest rate by a bold 1.5 percentage points Thursday; the Swiss Central Bank cut its own key rate by a surprising half-point; and the European Central Bank lowered its key rate by a half-point.
Britain's FTSE 100 fell 5.70 percent, Germany's DAX index fell 6.84 percent, and France's CAC-40 fell 6.38 percent. In Asian trading, Japan's Nikkei index closed down 6.53 percent, and Hong Kong's Hang Seng Index fell 7.08 percent.
Cisco's comments added to investors' nervousness and weighed on the technology-heavy Nasdaq. The world's largest maker of computer networking gear said orders declined sharply last month, suggesting to the market that the weak economy and tight credit markets are taking a larger-than-expected toll on many companies around the world. Cisco fell 41 cents, or 2.4 percent, to $16.98.
A range of industries have been bruised by the economy. Japanese automaker Toyota Motor Corp. reduced its annual earnings forecast Thursday to less than a third of what it was in previous fiscal year. Toyota tumbled $14.25, or 17.7 percent, to $66.12.
Among retailers, Wal-Mart rose 5 cents to $54.18, while specialty names Limited Stores Inc. fell 95 cents, or 8.3 percent, to $10.56 and Ann Taylor Stores Corp. fell $3.17, or 26 percent, to $8.85.
The dollar traded mixed against most other major currencies, while gold prices fell.
Light, sweet crude fell $4.14 to $61.16 a barrel on the New York Mercantile Exchange as fears of a slowing economy led to predictions demand will fall.
Bank-to-bank lending rates fell for the 19th straight day, a sign that banks are becoming more willing to lend. The London Interbank Offered Rate, or Libor, for three-month dollar loans dipped to 2.39 percent from 2.51 percent.
The three-month Treasury bill, considered the ultimate safe asset, saw its yield dip further to 0.33 percent from 0.42 percent late Wednesday. In general, a lower yield means higher demand, but it is also affected by the federal funds rate.
The yield on the benchmark 10-year Treasury note fell to 3.70 percent from 3.73 percent late Wednesday.
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