Last-Minute Sell-Off Drives Stocks Down

Stocks plunged in the final minutes of trading today, losing the momentum gained after the Federal Reserve's decision to cut a key interest rate.

Anticipation of the rate cut helped drive the market's 11 percent rally on Tuesday, as investors and traders hoped the move would further improve credit conditions.

Stocks seesawed, then pulled back after the Fed's midafternoon announcement that it would cut the federal funds rate -- the rate at which banks lend to each other overnight -- by a half-point, to 1 percent, the lowest level in four years. Some analysts suggested that this drop in the market reflected investors' disappointment that the rate cut had not been larger.

The three major indexes then picked up steam, with the Dow Jones industrial average gaining more than 280 points. But in the last 10 minutes of the session, the Dow shed 360 points, resuming the volatility that has come to characterize the last hour of trading.

The Dow closed down 0.8 percent, with a loss of more than 74 points, landing at 8990.06. The broader Standard & Poor's 500-stock index fell 1.1 percent, or 10 points to 930.09. The tech-heavy Nasdaq composite index closed at 1657.21, up nearly 8 points, a gain of about half a percent.

"This selling is just so indicative of the hair-trigger nervousness we're seeing in the market," said Richard E. Cripps, chief investment officer at EquityCompass Strategies in Baltimore.

Some analysts attribute the last-minute drop to hedge fund managers who were forced to sell stock to cover their losses and pay back investors.

"It's disheartening because people like to see a string of positive days," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati. "But if volatility rules the day, investors should not be surprised by big swings at any minute of any day."

Some investors found comfort in a slight uptick in durable goods reported yesterday by the Commerce Department. Orders for big-ticket manufacturing goods such as cars, appliances and airplanes rose 0.8 percent in September, against analyst forecasts that orders would fall 1.1 percent.

Company earnings reports continued to influence trading. Kraft Foods said its third-quarter earnings more than doubled because of the sale of its Post cereals business. Proctor & Gamble's quarterly earnings increased by nearly 9 percent on growth in emerging markets.

General Motors reported an 11.4 percent drop in third-quarter sales, but its shares rose 8.2 percent around media speculation about a tentative merger pact between GM and Chrysler.