NEW YORK - Stocks extended their decline and bond prices jumped Tuesday, a day after Wall Street's worst session in years, as nervous investors grappled with concerns about insurer American International Group Inc. and awaited the Federal Reserve's decision on interest rates. The Dow Jones industrial average traded in a wide range, sometimes dropping more than 100 after a 500-point slide on Monday.
Worries about AIG's well-being have intensified after several ratings agencies reduced their ratings on the company. Lower ratings can add to the amount of money the already cash-strapped company has to set aside. Investors are fearful that a failure by the world's largest insurer would touch off a wave of financial turmoil. AIG fell $2.38, or 50 percent, to $2.38.
Markets around the world were still reeling from the bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America Corp. Investors fear that tectonic shifts in the power structure of Wall Street signal that the financial sector's trouble with imperiled credit are far from over.
The Fed's regularly scheduled meeting, which many economists had expected would be a pro forma occurrence, is now much anticipated, especially after central banks around the world have loosened money supplies this week. Central banks are hoping an injection of capital will help soothe markets following the most serious tumult of the 14-month-old credit crisis.
Steve Sachs, director of trading at Rydex Investments, said that while the Federal Reserve's unprecedented steps in the past year to lend to more banks and accept a wider range of collateral have helped the markets, a broad interest rate cut would help undergird investor sentiment.
The Fed's lending moves "are far more effective than are rate cuts, but from the investor sentiment perspective nothing goes as far as rate cuts," he said, adding that he sees no reason why the Fed can't cut, particularly with energy prices easing inflation worries. "If you're worried about a credibility issue this is not the time to be worried about credibility."
In the first hour of trading, the Dow fell 41.85, or 0.38 percent, to 10,875.66. The Dow fell as much as 175 in the opening minutes of the session; on Monday, the Dow lost 504 points, its largest drop since the September 2001 terror attacks.
Broader stock indicators also fell. The Standard & Poor's 500 index declined 9.71, or 0.81 percent, to 1,182.99, and the Nasdaq composite index fell 13.28, or 0.61 percent, to 2,166.63.
Bond prices jumped as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.29 percent from 3.41 percent late Monday.
The market showed little reaction to the first drop in the Labor Department's Consumer Price Index in nearly two years. The CPI fell 0.1 percent last month, while the index excluding food and energy costs edged up a mild 0.2 percent. Both figures were in line with analyst expectations.
Some corporate news likely added to investors' unease.
Goldman Sachs Group Inc., the largest of the two big independent investment banks on Wall Street, posted its sharpest decline in earnings since becoming a public company in 1999. The company said quarterly earnings fell 70 percent from a year earlier and that it saw a marked decrease in client activity. The profit results were better than Wall Street had been expecting, though revenue fell short. The stock fell $13.75, or 10 percent, to $121.75.
Dell Inc. warned that it sees a further softening in global demand in the current quarter. The computer manufacturer fell $1.77, or 9.8 percent, to $16.22.
Hewlett-Packard Co. announced plans Monday to cut 24,600 jobs, or about 8 percent of its work force, over the next three years as it works through its acquisition of technology-services company Electronic Data Systems Corp. HP shares were little changed early Tuesday. HP rose 70 cents to $46.03.
Overseas, markets in Asia fell sharply Tuesday after being closed Monday. Japan's Nikkei stock average fell 4.95 percent. Hong Kong's Hang Seng index lost 5.44 percent.
In afternoon trading in Europe stocks showed far more modest declines than on Monday. Britain's FTSE 100 fell 4.59 percent, Germany's DAX index lost 2.63 percent, and France's CAC-40 fell 2.51 percent.
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