ITS HOLDING UP SO FAR
if this gets a posative outcome tomarrow we could explode.
NEW YORK -Traders are turning cautious about the prospects for the economy.
Stocks skidded Tuesday as the Federal Reserve began a two-day meeting that could provide new insight into how the economy is faring. The Dow Jones industrial average fell 100 points and bond prices jumped as investors looked for the safety of government debt.
It is widely expected that policymakers will hold interest rates steady at near zero, but investors are waiting to see what the central bank has to say in its assessment of the economy when the meeting concludes Wednesday.
"It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.
Investors also grappled with mixed economic reports and downbeat comments from an influential analyst.
Stocks extended their losses after the Commerce Department said businesses cut inventories at the wholesale level for a record 10th consecutive month in June. The drop has contributed to the recession. In one bright spot, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.
Financial stocks saw some of the steepest losses after analyst Richard Bove of Rochdale Securities wrote in a research note that bank earnings won't improve in the third or even the fourth quarter and that many companies will post losses. He said investors should lock in profits after a surge in bank stocks since early March.
"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.
With many traders on vacation, volume was light, which tends to skew price moves.
In early afternoon trading, the Dow fell 103.23, or 1.1 percent, to 9,234.72. The Standard & Poor's 500 index fell 13.73, or 1.4 percent, to 993.37, while the Nasdaq composite index fell 27.26, or 1.4 percent, to 1,964.98.
Four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 615.9 million shares compared with 509.6 million traded Monday.
Analysts say the market's retreat is a sign of health because the S&P 500 index had jumped 15 percent in just four weeks and 49 percent from a 12-year low in early March.
"We've come a long way fast," Bublitz said.
Bond prices rose as stocks retreated. The gains followed a solid showing at the first of the week's three auctions for a record $75 billion in debt. Prices often fall when the government introduces supply to the market. The sale Tuesday was for $37 billion in three-year notes.
Investors are on guard for a drop in buyers because that could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.
The yield on the three-year note, which moves opposite its price, fell to 1.75 percent from 1.78 percent late Monday. The yield on the benchmark 10-year Treasury note fell to 3.72 percent from 3.78 percen