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Stocks pull back as profit-taking sets in

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NEW YORK — Wall Street ended a relatively calm session with a moderate loss Tuesday as investors, while happy with the government's plans to spend up to $250 billion to buy stock in private banks, decided to cash in profits from the previous day's massive advance as they refocused their attention on the economy.

It was the first time in nine sessions that the Dow Jones industrial average didn't close with triple-digit losses or gains although it did swing in a 700-point range. The Dow closed down 76 points a day after its record 936-point jump.

Big advances by many bank stocks helped offset some of the declines in the Dow and the Standard & Poor's 500 index, giving them a better showing for the day than the Nasdaq composite index, which fell more than 3 percent. The technology-dominated Nasdaq also lagged ahead of a profit report from Intel Corp., as investors were reminded of the troubled economy and its impact on corporate earnings.

Profit-taking set in after the Dow surged more than 400 points at the opening. Wall Street is expected to see jittery trading in the weeks and perhaps months ahead because of worries about the economy; stocks also tend to ratchet up and down when they're recovering from a plunge like the one Wall Street has suffered in the past two weeks.

"We don't know if the bottom is in," said Lincoln Anderson, chief investment officer and chief economist at LPL Financial, referring to the market's advance Monday after huge losses last week. "We certainly expect heightened volatility for a fair amount of time while we sort out just exactly what's going on."

Investors had snapped up stocks Monday in anticipation of the government's plan. President Bush said Tuesday the government would use a portion of the $700 billion financial bailout passed at the start of the month to inject capital into the nation's major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.

The revised bailout plan differs from the original in that it aims to recapitalize banks, not just buy the troubled assets off their books at prices that could leave the banks with losses.

"This begins to penetrate the core of the problem," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.

Robert Dye, senior economist at PNC Financial Services Group, said the government's actions likely will help revive the credit markets, but now that the plan is place, investors are shifting back to concerns about the economy.

"These steps are not going to turn the real economy on a dime," he said of the government intervention. "The two keys to the fundamental economy right now are the job market and the housing market and both of those remain distressed."

"There isn't one bottom here. We're talking about multiple events. There will be a bottom in financial market and another in the labor market and one in the housing market. And they're not going to all line up," Dye said.

The Dow fell 76.62, or 0.82 percent, to 9,310.99.

Broader stock indicators also declined. The S&P 500 index fell 5.34, or 0.53 percent, to 998.01, and the Nasdaq fell 65.24, or 3.54 percent, to 1,779.01.

The Russell 2000 index of smaller companies, including many tech concerns, fell 16.24, or 2.84 percent, to 554.65.

Though the major indexes showed losses, advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange, where consolidated volume came to 7.97 billion shares, compared with 7.1 billion shares traded Monday.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said investors pleased about the government's plan gravitated toward industrial companies, seeing them as more likely to benefit from a revived credit market than tech companies. That also helped send the Nasdaq lower.

"People are thinking more of the blue chips are going to respond," he said.

The Dow remains 34.3 percent below its Oct. 9, 2007 record close of 14,164.53, and could fluctuate around these levels as investors await signs of stabilization in the housing and job markets.

Cardillo said he believes the worst lows are behind the stock market, but other analysts have shied away from saying Wall Street had reached a bottom. The Dow has not yet fallen below its low during the last bear market, the closing level of 7,286.27 on Oct. 9, 2002.

Investors have been trying to regain their footing after a gruesome week that obliterated about $2.4 trillion in shareholder wealth. The Dow shot higher Monday after an eight-day losing streak that amassed point losses of just under 2,400, or 22.1 percent, bringing the blue-chip index to its lowest level since April 2003. That 18.2 percent weekly plunge in the Dow was the worst in the index's 112-year history.

Following the Columbus Day holiday, the U.S. government bond markets reopened Tuesday and indicated that investors' desire for safe assets remains strong. The three-month Treasury bill's yield, which moves opposite its price, rose to 0.30 percent from 0.21 percent late Friday, and the 10-year note's yield rose to 4.03 percent from 3.86 percent.

A drop in a key bank-to-bank lending rate indicates banks could be growing more willing to lend to one another. The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.64 percent from 4.75 percent. Libor is important because many consumer loans, including about half of all adjustable-rate mortgages, are tied to it.

The recent sell-off in stocks came amid a seize-up in lending, as banks and investors around the world grew fearful about the creditworthiness of other institutions following the September bankruptcy of investment bank Lehman Brothers Holdings Inc. and the subsequent failure of thrift bank Washington Mutual Inc. Tight lending conditions make it harder and more expensive for businesses and consumers to get a loan, a headwind for economic growth.

Many of the nine banks the government identified as ones in which it will invest advanced Tuesday. Among them, Citigroup Inc. rose $2.87, or 18 percent, to $18.62, while Bank of America Corp. rose $3.74, or 16 percent, to $26.53. JP Morgan Chase & Co. fell $1.28, or 3.1 percent, to $40.71.

Intel fell $1.06, or 6.2 percent, to $15.93 ahead of its quarterly earnings report, which arrived after the closing bell. The chip maker's profit topped analysts' forecasts though the company warned the financial crisis is making it difficult to project results and that its fourth-quarter sales could fall short of Wall Street estimates.

Light, sweet crude fell $2.56 to settle at $78.63 per barrel on the New York Mercantile Exchange.

The dollar fell against most other major currencies, while gold prices declined.

Asian and European markets soared Tuesday. Hong Kong's Hang Seng index rose 3.19 percent, after a more than 10 percent increase on Monday. Japan's Nikkei index, catching up from the country's market holiday Monday, jumped 14.15 percent _ the largest increase ever.

In Europe, Britain's FTSE 100 jumped 3.23 percent, Germany's DAX index rose 2.70 percent, and France's CAC-40 rose 2.75 percent.

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