Dow Declines 100.37 to 10,504.22
LOU DOBBS, CNN ANCHOR: Tonight, the Dow stands at a two-month low after tumbling for a second straight session. The Wall Street sell-off comes a day before the Fed meets to decide whether to cut interest rates for the sixth time in six months. A slowing economy cutting into business travel. Airlines and hotels are suffering as companies slash travel budgets. Tonight, I'll be talking with Mike Holland about the market. And Henry Kissinger on why the treaty he wrote decades ago should be scrapped. Good evening. We begin tonight on Wall Street, where the Dow Jones Industrials fell 100 points. The Dow today tumbled for a second straight session and is now at a two-month low. The Nasdaq managed to gain 16 points. But volume was light. Investors awaiting the Fed's decision on interest rates. The Fed begins its two-day meeting tomorrow deciding whether to slash rates for the sixth time this year. Jennifer Westhoven reports from Wall Street.</s>JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): Investors pulled out of old economy stocks, pushing the Dow Jones industrial average down again, although tech stocks managed to eke out small gains. The focus: How deeply the Fed might cut rates at their upcoming meeting.</s>RICHARD MCCABE, MERRILL LYNCH: I think, at this point, 25 basis points would be a disappointment. I think people or the market is now beginning to look for a 50 basis point cut. That might be helpful. I think a key thing will be what the Fed indicates about their bias going forward.</s>WESTHOVEN: After drifting early in the session, the Dow headed south, plunging more than 130 points before paring some of the losses, to close down 100 points at 10,504. Old economy stocks that helped drag down the Dow: Caterpillar, Eastman Kodak, General Electric and Home Depot. Coca-Cola was one of the Dow's few winners after Goldman Sachs said investors have been too tough on the stock, and that firm's market strategist, Abby Joseph Cohen, said she is sticking to her targets which assume a big turnaround.</s>ABBY JOSEPH COHEN, GOLDMAN SACHS: Among the key factors we're focusing on is the idea that personal income continues to grow, and while there clearly is duress in some sectors, especially manufacturing and some areas of technology. We think the overall economy will be looking much better in 2002.</s>WESTHOVEN: That optimism didn't help investors today. The Nasdaq closing up 16 points at 2050. Chips stocks rallied slightly. One of the few sectors to end the day with solid gains.</s>WESTHOVEN: But even the small rally in some tech stocks could be in jeopardy. Applied Micro Circuits warned after the bell, another sign things are not getting any better in the bloodied tech sector. Traders say weeks of these profit bombshells mean investors may be too frazzled to commit to stocks until companies start delivering good news -- Lou?</s>DOBBS: Thank you very much, Jennifer. Jennifer Westhoven from the New York Exchange. The Federal Reserve a year ago this week decided to leave interest rates unchanged. Policy makers noted in their statement at that time concerns about "heightened inflationary pressures" and the unusually tight labor market. Now a year later, Alan Greenspan is in the midst of the most aggressive campaign of his career, trying to avoid a recession. Tim O'Brien looks at the bets on what the Fed will do or won't do going into tomorrow's meeting.</s>TIM O'BRIEN, CNN CORRESPONDENT (voice-over): After five-straight cuts of 50 basis points each, many economists believed a cut this week would not exceed 25 basis points, reducing the target interest rate to 3.75 percent. Then, starting last week, more depressed earnings reports leading an increasing number of Fed watchers to predict yet another 50 basis-point cut, blaming the failure of past cuts to ignite the economy.</s>DAVID JONES, AUBREY G. LANSTON: We should be seeing something. There is virtually nothing there. What we can say is the best the Fed has done is given us protection on the downside of the economy, perhaps kept us out of a recession, although just barely.</s>O'BRIEN: But some economists say once the effects of previous rate cuts kick in, another 50 basis-point cut Wednesday could ultimately overheat the economy.</s>JAMES SMITH, UNC CHAPEL HILL: We get it moving and then we get it moving too quickly and then we really have to react to slow things down, and that could well lead us into a recession a year from now.</s>O'BRIEN: Smith says he wouldn't cut interest rates at all, nor would Bank Of America's Mickey Levy, who attributes the sluggish economy to factors the Fed has little power to fix.</s>MICKEY LEVY, BANK OF AMERICA: The economy is being hurt by higher energy prices and the unwinding of the earlier boom in business investment in the Nasdaq, and those factors the Fed can't do anything to offset in the short run.</s>O'BRIEN: Still, Levy predicts the Fed will cut rates one-quarter percentage point, or 25 basis points.</s>O'BRIEN: Whatever the open market committee decides, it is expected to include the now customary advisory that members continue to regard the risk of the weakening economy is outweighing the risk of inflation. Translation: Regardless of what happens Wednesday, Lou, there could be still more rate cuts down the road.</s>DOBBS: Tim, thank you very much. Tim O'Brien from Washington. A report out today shows continued strength in the housing sector. Sales of existing homes rose nearly 3 percent last month. That, despite a modest gain in mortgage interest rates. Economists were expecting home sales to be flat. The median price, interestingly enough, for a single family home hit $145,000 in May. That is a record high. On Wall Street today, investors focused on the economy and deal making. The biggest deal of the day: A multibillion-dollar takeover in the banking business. Washington Mutual confirmed the speculation last week, saying it will buy Dime Bancorp for $5.2 billion in cash and stock. That's an 11 percent premium over Friday's closing price for Dime. Dime will give the company a stronger position in the Northeast. Checking Wall Street's reaction: Washington Mutual down almost $2 a share. Dime Bancorp up over $1 on the day. Also, Canadian mining company, Barrick Gold, agreed to buy Homestake Mining in a $2.3 billion all-stock deal. That offer represents a 31 percent premium to Homestake's closing price Friday. The combined company would be the world's No. 2 gold producer with a market cap of $9 billion. Wall Street's reaction, Barrick Gold down 75 cents. Homestake Mining, up $1.40. The price of gold today by the way gaining more than $1. While silver and platinum edged slightly lower. The tally of corporate layoffs continues to grow, International Paper after the market closed announced it's slashing 3,000 jobs, about 10 percent of its work force. The Dow component saying the changes will help cut costs and allow it to focus its resources on its core businesses of paper, packaging and of course forest products. Ahead on MONEYLINE, one of the first expenses to go as companies rush to cut costs is business travel. We'll take a look at the impact on airlines and hotels. And it is severe. The secretary of state addresses the United Nations on the AIDS catastrophe in Africa. Also, the former secretary of state who says the antiballistic missile treaty is a relic that should be scrapped. He showed know; he wrote it.