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By Jennifer Yousfi
Despite the reassurance that the central bank stands ready to cut interest rates further, U.S. stocks declined today (Thursday) after U.S. Federal Reserve Chairman Ben S. Bernanke acknowledged during congressional testimony that the Fed is now projecting slower growth for the U.S. economy this year than it was in past forecasts.
At noon, all three of the key U.S. stock indices were in the red. The blue-chip Dow Jones Industrial Average Index dropped 100.55 points (-0.80%), to trade at 12,451.69. The tech-laden Nasdaq Composite Index shed 25.53 points (-1.08%), to reach 2,348.40. And the broader Standard & Poor's 500 Index lost 10.70 points (-0.78%), to settle at 1,356.51.
Bernanke told congressional leaders that "more-expensive and less-available credit seems likely to continue to be a source of restraint on economic growth." He also noted that "the outlook for the economy has worsened in recent months, and the downside risks to growth have increased."
The markets took Bernanke's forecast as bad news and sent stocks lower – ending three straight days of gains.
Basic materials and energy were the only sectors to post gains, rising 0.38% and 0.58%, respectively. Technology was down 1.00% and the financial sector declined 0.98%, once again making both those the biggest losers among their brethren.
"In sifting through Bernanke's speech, one could make the argument that there are a number of warnings about an eventual endgame to the Fed's rate cuts," Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., told MarketWatch.
The Fed can only cut rates so much in a short stretch, meaning it appears clear that growth will now slow in 2008 – despite the central bank's best efforts.
But the story was much different overseas, where surprisingly strong economic data prompted strong gains in several markets.
Japan's Nikkei Index surged 4.3%, closing at 13,626.45 after a 558.15-point gain. Hong Kong's blue-chip Hang Seng Index gained 852.13 points to close at 24,021.68.
In Europe, the indices were narrowly mixed in late afternoon trading, with the Paris-based CAC40 up slightly, and the Frankfurt-based DAX and London's FTSE 100 both posting slight losses in late-afternoon trading.
At midday, the dollar had gained against the yen (up 0.502%), although the greenback lost ground to both the euro (-0.349%) and pound sterling (-0.568%).
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