Despite Late Sell-Off, Markets Hold On to Most of Monday's Big Gains

By Renae Merle
Washington Post Staff Writer
Wednesday, March 25, 2009

Stocks stumbled yesterday, failing to build on Monday's rally when investors cheered a trillion-dollar plan to stabilize banks.

After swinging between positive and negative territory, Wall Street turned negative late in the afternoon and its losses grew during the final 30 minutes of trading. That left the Dow Jones industrial average down 1.5 percent, or 115.89 points, to close at 7659.97. The broader Standard & Poor's 500-stock index fell 2 percent, or 16.67 points, to 806.25, while the tech-heavy Nasdaq composite index tumbled 2.5 percent, or 39.25 points, to 1516.52.

The sell-off chipped into but did not wipe out Monday's rally, which sent the Dow up 7 percent. It is not unusual for stocks to lose ground after a major rally as investors lock in profits. By hanging on to most of Monday's gains, investors are indicating that a two-week market rally that has pushed the Dow up 17 percent may not be over, analysts said.

Investors have been cheered by the Treasury Department plan to relieve banks of their troubled assets, the Federal Reserve's effort to buy long-term Treasury bonds and keep interest rates low, and nuggets of better-than-expected economic news, including an unexpected jump in existing-home sales, analysts said.

"We have also actually seen some decent economic data lately," said Philip J. Orlando, chief equity analyst at Federated Investors in New York. "The economic news is getting less bad, and that's the precursor to getting good."

That has also added weight to expectations that the economy could begin to stabilize in the last half of the year, Orlando said. But if the economic data turn negative, Wall Street's optimism could quickly disappear, he said. "The fact that we could see a difficult job report and then difficult corporate earnings in the middle of April could cause another sell-off," he said.

Bank stocks, which have helped lead the recent rally, were down significantly. Citigroup and Bank of America fell 5 percent and 8 percent, respectively. J.P. Morgan Chase tumbled 9 percent, the biggest decline on the Dow.

Crude oil prices were nearly flat at $53.98 per barrel on the New York Mercantile Exchange, but energy stocks fell. Exxon Mobil and ConocoPhillips were down 1.7 percent and 2.9 percent, respectively.

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