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The BBC's Rory Cellan-Jones
"Many of the new breed of investors are shying away from the market"
 real 56k

Wednesday, 21 February, 2001, 22:43 GMT
The fall and fall of the Nasdaq
despairing traders
Two years of stellar gains in technology stocks bit the dust after another fall sent the Nasdaq Composite Index tumbling another 2.1% in New York trading for a third straight day of losses.

Technology shares sank amid renewed inflation concerns in the US economy.

During the session, the Nasdaq index, comprising mainly of technology-related stocks, ended at 2,269, its lowest close since March 1999.

It is a pattern that has seemingly repeated itself for months: Just as it appears the US stock markets are in a position to right themselves, corporate earnings woes or worrisome economic data send markets plunging.

It has left many bewildered market enthusiasts scratching their heads.

New data, new worries

Enterprising investors who took advantage of seemingly bargain-basement prices have found that their investments move only sideways or - worse - head lower.

Wednesday's latest batch of data revealed inflationary pressures in prices at the consumer level, sending jitters down Wall Street's spine. Figures from the Labour Department showed prices pushed higher by 0.6% in January, fed largely by higher energy prices.

"The market isn't happy," said Barry Hyman, chief equity strategist for Weatherly Securities in New York.

He said Wednesday's report combined with last week's equally alarming producer-price report have produced a "deadly mix for the market".

The latest rise in the Consumer Price Index (CPI) surprised analysts who only expected prices to rise by 0.3% - half the amount reported by the government.

Prices were pushed higher largely by a temporary rise in energy price, led by a 17% increase in natural-gas prices.

The so-called "core" rate, which excludes volatile energy and food prices, also rose a greater-than-expected 0.3%. Core prices were pushed higher by an increase in tobacco prices, while prices for houses and automobiles also rose.

Interest-rate cut?

With the renewed inflation concerns comes speculation among Wall Street insiders whether the Federal Reserve, the US central bank, will cut interest rates at its next meeting in March.

Last year, the Fed remained hawkish on inflation, keeping rates high and money tight in the hope of keeping rising prices at bay.

Then in January, in a stunning reversal, it lowered interest rates by half a percentage and focused its concerns on an economy tilting toward recession.

The Federal Reserve followed up its early January rate cut with another one at the end of January, following comments by Chairman Alan Greenspan, who spoke gloomily about prospects for the US economy before the US Senate.

"We are at near zero [growth]", Mr Greenspan said at the time.

Analysts are now pointing their finger at the Fed for not properly navigating the economy through its explosive growth and then sudden downturn.

"The Fed has made massive errors," said Lawrence Kudlow, chief economist at ING Barings. "In 1999, they were too loose, and in 2000, they were too tight."

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See also:

21 Feb 01 | Business
Shares gloom deepens
21 Feb 01 | Business
US inflation jumps
13 Feb 01 | Business
Greenspan warns on US economy
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