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Wednesday December 20 10:42 AM ET Stocks Crumble As Corporate Profits Dim

By Denise Duclaux

NEW YORK (Reuters) - Stocks buckled in early morning trading on Wednesday as profit warnings and investment downgrades slammed Wall Street one day after the U.S. Federal Reserve warned the nation's economy may be slowing too quickly.

``There is a kind of emotional attitude that is taking the market down,'' said Philip Dow, director of equity strategy at Dain Rauscher Wessels. ``Investors are in a show-me mode and I don't blame them. It's been a very painful year.''

The technology-dominated Nasdaq Composite Index (^IXIC - news) tumbled 110.72 points, or 4.41 percent, to 2,400.99, after it scraped a new bottom for the year with a drop of more than 5 percent after the opening bell. The Nasdaq is now off more than 50 percent from its March high.

Cisco Systems Inc. (NasdaqNM:CSCO - news) led the fall, down more than 10 percent, or $4-1/2, to $37-1/4 after premier Wall Street house Merrill Lynch cut its investment rating on the Internet gear maker and blamed a slowdown in technology spending.

The Dow Jones industrial average (^DJI - news) fell 154.33 points, or 1.46 percent, to 10,430.04. The world's largest computer company, International Business Machines Corp. (NYSE:IBM - news), off $3-3/4 to $86-3/8, and computer and printer giant Hewlett-Packard (NYSE:HWP - news), down $1-5/16 to $30, pressured the blue-chip gauge after Merrill lowered their ratings as well.

The broader Standard & Poor's 500 Index (^SPX - news) dropped 26.18 points, or 2.01 percent, to 1,279.42, touching a fresh year low.

``Techs are overvalued, especially considering the likelihood of a slowdown in the global economy next year and a barrage of warnings daily,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald.

Networking equipment maker Foundry Networks Inc. (NasdaqNM:FDRY - news) plunged about 50 percent, or $15-3/16, to $15-7/16 on the Nasdaq after warning earnings would land below analysts' expectations due to a shift in spending on communications infrastructure.

Jabil Circuits Inc. (NYSE:JBL - news), a leading contract electronics manufacturer, skidded 25 percent, or $6-15/16, to $20-7/8 on the New York Stock Exchange (news - web sites) after saying quarterly earnings fell short of expectations because of shortages of key components.

-- Rachel Gibson (rgibson@hotmail.com), December 20, 2000

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Thursday December 21, 1:26 pm Eastern Time

U.S. Economic Growth Slows Sharply

U.S. Economy Slows Sharply to an Annual Growth Rate of 2.2 Percent, the Weakest Performance in Four Years

By MARTIN CRUTSINGER AP Economics Writer

WASHINGTON (AP) -- The economy braked to a four-year-low in growth of just 2.2 percent in the July-September quarter, further evidence that America's booming economy is rapidly cooling off.

A downward revision Thursday by the Commerce Department in the gross domestic product for the third quarter sent private economists scurrying to lower their forecasts the current quarter and next year.

While few are predicting an outright recession, many said the economy has definitely entered a ``growth recession'' in which output keeps expanding but at such a slow pace that the unemployment rate rises.

The Clinton administration, however, took issue on Thursday with recent comments by both President-elect Bush and his running mate, Dick Cheney, that the country could be on the leading edge of a recession.

Both Bush and Cheney have used the slowdown as a key reason for urging Congress to pass Bush's $1.3 trillion tax cut.

Gene Sperling, Clinton's national economics adviser, said most forecasters are still predicting moderate growth for next year with low inflation and only a slight rise in unemployment.

``With most private sector forecasters still projecting a soft landing and solid growth for next year, the next president and his team should not be talking down our economy and potentially hurting confidence just to gain short-term political positioning,'' Sperling said in an interview with The Associated Press.

Cheney, meeting separately with reporters, defended his comments.

``We don't want to talk down the economy ... but there does seem to be a lot of evidence out there'' of a slowdown, he said. ``Whether or not this ultimately results in a recession ... nobody knows at this time.''

Federal Reserve Chairman Alan Greenspan, in his most recent comments about the economy, said policy makers must be alert to the danger that an unexpected event, such as a sharp rise in energy prices or a big drop in the stock market, could derail the economy.

The worry, analysts said, is that consumers and business, two of the driving forces of the economic boom, will suddenly decide to cut back on spending and investment.

``You can talk yourself into a recession. It is the drop-off in consumer confidence that economists find most alarming,'' said David Wyss, economist at Standard & Poor's in New York.

Bruce Steinberg, chief economist at Merrill Lynch, said the soft landing the Federal Reserve was trying to engineer with its six interest rate increases from June 1999 to May of this year will be a little harder than expected.

``The U.S. economy is in the midst of what we have been terming a rough landing,'' he said. He predicted that GDP growth over the next four quarters will average around 2.5 percent.

Wyss said he was forecasting that the unemployment rate over the next year will rise by nearly a full percentage point to around 4.8 percent, meaning an additional 1.5 million people will lose their jobs.

That would represent a significant change from the past four years, when the supercharged economy raced ahead at growth rates above 4 percent, the best sustained growth period since the early 1960s. That helped push the unemployment rate down to a 30-year low of 3.9 percent in September and October.

In another sign that the slowdown is having an impact, the Labor Department said Thursday that the number of Americans filing first-time claims for jobless benefits rose by 34,000 to 354,000 last week, pushing the four-week moving average to the highest level in more than two years.

The 2.2 percent final estimate for GDP growth in the July-September quarter was less than half the 5.6 percent growth recorded in the April-June quarter.

It represented a downward revision from a month ago when the government put third-quarter GDP growth at 2.4 percent.

The Commerce Department's new report showed that the slowdown was having the desired effect on inflationary pressures with an index tied to the GDP rising at a rate of just 1.6 percent in the third quarter, down from an estimate a month ago that prices were rising at a 1.9 percent rate in the summer.

The Fed on Tuesday switched its policy directive away from inflation worries to concerns about economic weakness, a 180-degree turnabout that represented a strong signal that the central bank will start cutting interest rates at its next meeting on Jan. 30-31.

Many analysts are forecasting three to four rate cuts next year as the Fed moves to keep the slowdown from weakening further.

-- Rachel Gibson (rgibson@hotmail.com), December 21, 2000.