NEW YORK – Investors digested more downbeat economic news Friday and cashed in some of their gains from the previous session's big rally. Hints from Federal Reserve Chairman Ben Bernanke that another interest rate cut might be possible appeared to have little effect on trading.
Some retrenchment was to be expected after such a big advance, in which the Dow Jones industrials rallied more than 550 points. But there was also plenty of discouraging news for investors to focus on, including comments from Bernanke that the markets remain under "severe strain" and a sobering report on October retail sales.
The Fed chief said during a speech in Frankfurt, Germany, that he would work closely with other central banks to try to alleviate the global financial crisis and left open the door to a fresh interest rate cut. The Fed is scheduled to meet Dec. 16 at its last regularly scheduled meeting this year.
Meanwhile, the Commerce Department reported that retail sales plunged by the largest amount on record in October as consumers cut back on spending in the wake of the financial crisis. Retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.
The market got more disappointing consumer news from retailers Abercrombie & Fitch Co. and JCPenney Co. Both warned that profits will come in below Wall Street 's already lowered projections as retailers head into a holiday shopping season that could be among the slowest on record.
The great fear on the Street is that Americans' reluctance to spend will extend what is already a serious economic downturn. A stream of negative consumer news sent stocks tumbling earlier in the week.
There was also disquieting news from the tech sector. Sun Microsystems Inc. said it will cut up to 6,000 workers, or about 18 percent of global staff, as part of a massive restructuring plan. And handset maker Nokia Corp. warned the global economic slowdown will weigh on sales next year.
In midmorning trading, the Dow shed 142.73, or 1.62 percent, to 8,692.52.
The Standard & Poor's 500 index dropped 18.96, or 2.08 percent, to 892.33, and the Nasdaq composite index stumbled 42.30, or 2.65 percent, to 1,554.40.
On Thursday, the Dow's surge was the third-largest single-session point gain on record, following the 889-point rise on Oct. 28 and the 936-point surge on Oct. 13. The rally came after three days of selling that wiped out about $1 trillion in shareholder value.
Wall Street's violent swings in recent weeks are part of the market's ongoing "bottoming" process, analysts say, in which the market retests multiyear lows hit last month. The market is expected to remain volatile for some time — as evidenced by past recoveries from a bear market.
Some analysts said investors were positioning themselves ahead of a meeting of Group of 20 international leaders in Washington this weekend. The meeting could bring decisions on how to help the troubled global financial system.
Government bond prices rose as investors looked for safety. The three-month Treasury bill's yield fell to 0.15 percent from 0.20 percent late Thursday, and the yield on the benchmark 10-year Treasury note fell to 3.75 percent from 3.85 percent late Thursday. Lower yields indicate higher demand.
Meanwhile, the price of a barrel of light, sweet crude fell 89 cents to $57.35 a barrel on the New York Mercantile Exchange. Oil, which has dropped to the lowest levels since January 2007, has been falling for the same reason as stocks — the fear of a deep global recession.
In corporate news, Ford Motor Co. and General Motors Corp. will be in focus as Senate Democrats pressed ahead with plans to vote next week on a $25 billion emergency loan plan. The bailout, which still faces strong GOP opposition, could come before Congress on Monday.
The dollar rose against other major currencies. Gold prices also rose.
Overseas, Japan's Nikkei closed up 2.72 percent and Hong Kong Hang Seng rose 2.43 percent. In European trading, London's FTSE 100 was up 2.49 percent, Germany's DAX rose 3.53 percent, and France's CAC-40 added 1.99 percent.