How low will the Dow go?

Renewed concerns about inflation and continued disappointment about the Fed's interest rate decision yesterday fueled another selloff on the

Dow Jones Industrial Average today. The blue-chip index plunged 234 points, or 2.4%, to 9487, a fresh two-year low. Down 17% from its record high last year, the Dow is close to bear market territory (bear markets are technically defined as a plunge of 20%).

A day after the

Federal Reserve cut interest rates by a half-percentage point, quashing hopes for a more aggressive 75 basis-point cut, new economic data had Wall Street in a tizzy. February's

consumer price index, released before the opening bell this morning, came in a touch higher than economists had forecast, renewing concerns about inflation.

By and large, market experts weren't surprised by today's action. "There's a growing perception that the Dow has some more room to fall," observed Peter Coolidge, managing director of trading at

Brean Murray Foster Securities

.

Having traded up modestly this morning, the

Nasdaq Composite Index finished lower by 27 points to 1830, its worst finish since November 1998. Talking about the tech measure's earlier advances, Coolidge observed: "We've seen a rotation into Nasdaq stocks in recent weeks. But it hasn't amounted to anything." The broader

S&P 500 index ended lower, too. Both the Nasdaq and S&P are mired deep in a bear market.

One positive sign today was that semiconductor stocks traded higher. The

Philadelphia Stock Exchange Semiconductor Index

finished ahead 2.9%. "People seemed to be more comfortable putting their money into the technology market," said Matt Johnson, head of Nasdaq trading for

Lehman Brothers

. Among traders, the consensus was that investors overreacted yesterday and were hunting in some oversold sectors today.

Other technology groups finished ahead as well. The

American Stock Exchange Networking Index

closed up 0.3%, while the

Philadelphia Stock Exchange Computer Box Maker Index

rose 1.6%.

Yesterday, the

Federal Reserve lowered the

fed fund rate -- the interest rate at which banks lend money to each other overnight -- to 5%. This was the third time since January that the Fed lowered rates to spur demand in the economy.

In its language, the Fed left open the possibility of another cut before its next official meeting on May 15. The

fed funds futures contract -- a good proxy of the expected direction of interest rates -- is now pricing in a 100% chance the Fed will cut before May 1. But some think the Fed is behind the curve in fixing a broken economy and that its vague statement just confused matters.

On the earnings front, brokerage stocks got some attention today.

Morgan Stanley Dean Witter

(MWD)

fell 3.3% to $54.64, after it said its first-quarter

profit dropped 30% from the year-ago level.

Lehman Brothers

(LEH)

dipped 3% to $63.90 after it posted first-quarter results today that

slightly exceeded Wall Street estimates, even as profits dropped nearly 28% from the year-ago period. And

Bear Stearns

(BSC)

dipped 2.7% to $45.50, as its profits tumbled.

Market Internals

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International

In reaction to the

Bank of Japan's

efforts to bring the nation's economy back to life, stocks soared in Japan overnight -- the

Nikkei 225

racked up a surprising 913 point gain, or 7.49%, to close at 13,103.94. Hong Kong fared less well, with the key

Hang Seng

ending the day down 69.4 points, or 0.52%, to 13154.4.

European markets sold off vigourously, due in part to disappointment over yesterday's rate cut in the U.S. The major indices were all registering three-digit losses. London's FTSE 100 fell 106, or 2%, to 5541. The Paris

CAC 40

dropped 115, or 2.2%, to 5024. And Frankfurt's

Xetra Dax

lost 160, or 2.8%, to 5622.

In a note out this morning,

Merrill Lynch

attributed Japan's firecracker rally to a mix of aggressive year-end short-covering by funds as well as growing optimism over the BOJ's announcement on easing and the prime minister's international pledge to President Bush to make progress on the Japanese bad loan situation. Plus, two Wall Street firms recently went overweight Japan, the report said.

Merrill thinks it is still too early to upgrade Japan, however.

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