U.S. Stocks Tumble In Response To Fed Cut

NEW YORK (MarketWatch) -- U.S. stocks tumbled further Tuesday afternoon after the Federal Reserve shaved both its Fed funds target and discount rates by 25 basis points and offered a more tepid assessment of the economy than equity investors were looking for.

"There are some players out there who were hoping or estimating they would cut a little bit more," said Stuart Freeman, chief equity analyst at A.G. Edwards & Sons Inc.

The Dow Jones Industrial Average fell 225.6 points to 13,500.6, with just two of the blue-chip index's 30 components remaining higher.

AT&T was up 5.3% after the telecommunications giant's earlier announcement that it would hike its dividend by 13% and buy back 400 million shares. .

Dow member McDonald's Corp. also traded higher, its stock up 2.2%.

The Dow's largest laggards included financials, with American Express Co. recently off 3.3% and JP Morgan Chase Co. down 2.8%.

Citigroup Inc. was off 3% after an earlier rise on a report it would name Vikram Pandit as its chief executive officer.

The S&P 500 fell 27.53 points to 1,488.43 while the Nasdaq Composite declined 42.62 to 2,676.33.

On the New York Stock Exchange, 983 million shares traded hands, and declining stocks outran advancers 4 to 1. On the Nasdaq, more than 1.5 billion shares were exchanged, and decliners topped advancers more than 2 to 1.

Fed decides

The Fed's decision to cut interest rates was expected, but the central bank moved more cautiously than equity investors had hoped. The Fed signaled its third rate cut since August might be enough.

"Obviously the market would have responded positively to a half and a half, or even a quarter and a half in the discount rate," said Freeman.

"There is a little disappointment out there that this isn't going to add some of the oomph to the economy next year," he said.

Issues in action

Texas Instruments shares jumped 2.3% after the company lifted its forecast, citing strength in demand for power notebook chips offsetting weakness in wireless.

Shares of H&R Block Inc. fell 2.3% after the nation's largest tax preparer forecast a wider second-quarter loss as it winds down its troubled subprime-mortgage operations.

Washington Mutual shares fell 9.1% after the lender said it would exit the subprime lending business and cut 3,150 jobs. It also plans to slash its dividend and sell $2.5 billion in convertible preferred stocks.

Kroger Co. shares slid 5.5% after the largest U.S. supermarket operator reported an 18% hike in third-quarter profit, topping Wall Street estimates, but offered a forecast that fell below consensus projections. .

Shares of Starbucks Corp. also fell, down 3% in afternoon trade, after Goldman Sachs cut its rating to neutral from buy, citing slower same-store sales and declining new store productivity. .

Overseas

European shares edged lower, paced by a decline in the property sector as investors fretted about tightening credit market conditions. .

Asian stocks rose, with markets in Hong Kong and Japan tilting higher as investors bought financials, also on anticipation of the Fed's rate cut. .

By Kate Gibson