Stocks, interest rates tumble along with world markets as Fed grows more cautious

Stocks retreat as Fed grows more cautious

NEW YORK — Stocks and interest rates are tumbling as investors around the world take a bleaker view of the U.S. economy.

Companies across a wide range of industries are down Wednesday, a sign that investors expect all businesses to suffer if the economy continues to weaken.

Investors’ gloom is deepening a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy.

Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem for investors is that economic data has been so muddled lately that they have no sense of whether the recovery will hold.

The Dow Jones industrial average is down 220.76, or 2.1 percent, at 10,423.79. The Standard & Poor’s 500 index is down 27.38, or 2.4 percent, at 1,093.68. The Nasdaq composite index is down 62.48, or 2.7 percent, at 2,214.69.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

NEW YORK (AP) — Stocks and interest rates tumbled Wednesday as investors around the world took an bleaker view of the U.S. economy.

The Dow Jones industrial average fell more than 200 points and all the major indexes fell more than 2 percent. The yield on the Treasury’s 10-year note fell to its lowest level since March 2009 as investors sought the safety of government securities.

Companies across a wide range of industries were down Wednesday. Only 324 stocks rose on the New York Stock Exchange, while 2,564 fell, a sign that investors expecting all businesses to suffer if the economy continues to weaken.

Investors’ gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy. Stocks began their plunge in Japan, where the Nikkei stock average fell 2.7 percent, and heavy sellingn followed in Europe and then the U.S.

Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem for investors is that economic data has been so muddled lately that have no sense of whether the recovery will hold.

“Uncertainty, uncertainty, uncertainty,” was the way that Javier Perez-Santalla, managing director for futures and foreign exchange at the institutional brokerage firm Dinosaur Group, described the mood in the market.

“Everyone is scratching their heads, saying ‘which way?’” Perez-Santalla said. “We’re kind of stuck in this no man’s land, where we’re damned if we do, damned if we don’t.”

The Fed said Tuesday it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans and in turn increase lending and help the economy grow faster.

But the Fed’s moves were expected to be quite small in comparison to what the economy needs. And many investors were selling because the debt purchases would have only a limited impact on the economy.

In morning trading, the Dow Jones industrial average dropped 216.07, or 2 percent, to 10,428.33. The Standard & Poor’s 500 index fell 26.17, or 2.3 percent, to 1,094.89.

The S&P 500 slipped below 1,100, a key technical and psychological level. Falling and holding below that level could lead to more selling as computer-driven trading sets in.

The Nasdaq composite index fell 62.93, or 2.8 percent, to 2,214.24. The Nasdaq tends to have the biggest losses when stocks are falling sharply because many of its component companies are smaller businesses that tend to struggle the most in a weak economy.

And trading volume was again light on the NYSE, at 268 million shares. Trading has been particularly slow, even by summer standards in recent days as uncertainty about the economy led many investors to exit the market completely. Low volume also can exaggerate swings in the market.

The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.71 percent from 2.77 percent late Tuesday. Interest rates are often set based on the yield of 10-year Treasurys.

The 10-year yield is at levels not touched since late March 2009 just weeks after recession worries sent the stock market to a 12-year low.

Britain’s FTSE 100 fell 2 percent, Germany’s DAX index dropped 2 percent, and France’s CAC-40 fell 2.3 percent. Japan’s Nikkei stock average dropped 2.7 percent.

Economic reports in recent months, including key measures on gross domestic product and employment, have pointed to a slowing recovery in the U.S. Opinions are mixed about whether the economy could fall back into recession. A report Wednesday showed the U.S. trade deficit widened in June to its highest level in 20 months as exports dipped. Falling exports are discouraging because they mean U.S. manufacturers could be slowing down. Early this year, manufacturing showed the most consistent signs of recovery.

Weak economic reports have also stood in contrast to upbeat earnings, which powered stocks higher throughout July. Strong earnings and optimistic outlooks from companies have continued in recent weeks. Yet much of those profits have been driven higher because companies have slashed their work forces. That may not be sustainable.

On Wednesday, the healthy earnings reports continued to roll in.

Walt Disney Co. was helped by its ESPN television station and its movie studio, which produced hits like “Toy Story 3″ during the quarter. Macy’s Inc. raised its profit outlook as it carves out new market share against its rivals.

Macy’s rose 95 cents, or 4.9 percent, to $20.33. Disney fell 82 cents, or 3.2 percent, to $34.47.