BEWARE OF THE BEAR DOW, NASDAQ FALL BELOW CRITICAL THRESHOLDS.

Byline: Staff and Wire Services

NEW YORK - The stock market fell sharply Wednesday, with the Dow Jones industrial average falling below 10,000 for the first time in five months as investors grew more concerned about the global reach of the economic slowdown.

The Dow fell more than 3 percent, a greater percentage than either the technology-heavy Nasdaq composite index or the broader Standard & Poor's 500-stock index. That was a new development in the current market decline, which had been far greater among the onetime darlings of the technology sector.

On Monday, the S&P 500 entered a bear market by falling 20 percent below its peak, joining the Nasdaq. Wednesday's fall in the Dow - which had largely weathered the battering of technology stocks - brought it close to bear market territory, off 15 percent from its record closing high of 11,722.98 on Jan. 17, 2000.

``This is a clear warning sign that the damage is not contained to technology,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald & Co. ``There is no place to hide.''

The Nasdaq again closed below the important psychological level of 2,000, dropping 42.69 points, or 2.1 percent, to 1972.09 - about 61 percent off its record high of 5048.62 set on March 10, 2000.

The drop in the Dow came hard and fast at the opening on fears of a global economic slowdown.

Even optimism that the Federal Reserve will lower interest rates next Tuesday by half a percentage point or even three-quarters point failed to slow the sell-off.

``We're beyond fundamental selling at this point and into emotional selling,'' said Kevin Parke, chief equity officer at MFS Investments in Boston. ``It's an emotional roller coaster for individual investors, and they're reacting with their stomachs.''

Financial stocks, which had once climbed ever higher alongside the booming economy, posted big declines. And fund managers, who had been shifting their holdings from technology issues to include the more cautious pharmaceutical, consumer products, food and medical stocks, began abandoning those industries.

As even those stocks that had been considered safe came under pressure, money appeared to be flowing into Treasury bonds. The yield on 10-year Treasuries fell to 4.82 percent, from 4.93 percent the previous day. The Federal Reserve, which has cut short-term interest rates twice this year, is widely expected to cut rates again next week, but investors appear to be losing faith in the Fed's ability to engineer a quick recovery.

In Europe, stocks initially dropped sharply Wednesday because of fears about the United States and Japan, though they rebounded a bit.

Until recently, the spate of weak corporate and economic news ravaged mainly the stocks of technology companies, leaving many industrial stocks with surprisingly controlled losses of only about 5 percent from their highs, said John C. Forelli, an institutional money manager for Independence Investment Associates.

``Investors are beginning to say this isn't just a technology-related thing,'' said Brett Gallagher, a vice president of Julius Baer Investment Management, who manages $400 million in equity holdings for foundations and wealthy individuals. ``If there's a slowdown, it's going to affect those industrials. I'm beginning to believe the safest place for us is cash.''

Fear of spreading

There is also growing concern that the economic malaise is spreading and that the decreased pace of American business may be destined to spread overseas.

``We've sort of broadened the wall of worry to the global economy,'' said Arthur Hogan, chief market analyst for Jefferies & Co.

Wall Street was shaken at the opening of trading in New York after the European markets plunged.

``People have just begun to factor in the prospect of weaker markets elsewhere in the world,'' said Robert D. Hormats, vice chairman of Goldman Sachs (International).

After a sharp early sell-off, the U.S. stock markets failed to recover. Weighed down in part by losses in Citigroup, J.P. Morgan Chase and American Express, the Dow fell 317.34 points, or 3.1 percent, to close at 9,973.46, after trading as low as 9,817.74. The last time the Dow closed below 10,000 was on Oct. 18.

The Nasdaq composite index dropped 42.69 points, or 2.1 percent, to 1,972.09. The S&P 500 lost 30.95 points, or 2.6 percent, to 1,166.71.

The falling market drew increasing attention from the government. The decline ``worries me,'' President George W. Bush said, speaking in New Jersey to promote his plan for a $1.6 trillion tax cut. ``With the right policies, I'm confident the economy will recover.''

The so-called old-economy stocks that make up most of the Dow industrials have largely been shielded by perceptions that a slowdown in the technology sector would not spread to the rest of the economy.

Financial stocks and other old-economy issues have ``proven to be safer than tech stocks, but by no means are they immune to the economic cycle,'' Forelli of Independence Investment Associates said.

``If economists start writing off 2001 as a recession year,'' he added, ``maybe it's too early to start buying stocks.''

Earnings warnings came from McDonald's, one of the 30 components of the Dow, and from Northwest Airlines. McDonald's fell 25 cents, to $27.55, after it cut its 2001 earnings projection by 4 cents to 5 cents a share. It said the outbreaks of mad cow disease and foot-and-mouth disease in Europe were causing some consumers to avoid hamburgers.

Northwest fell 94 cents, to $19.75, after it said its first-quarter loss might reach $150 million as the economic slowdown cuts into business travel.

Within the technology sector, even companies that reported strong performances saw their stocks deflate. Comverse Technology, an Israeli company that makes telecommunications software, reported late on Tuesday that quarterly earnings had exceeded Wall Street's expectations. It raised its forecast to analysts for the coming quarter, only to be dropped from Goldman, Sachs' recommendation list. Its shares fell $3, to $67.

``Brokerage firms are downgrading anything that is still standing to get out of the way of the selling pressure,'' said Mary C. Sunderland, a portfolio manager who oversees $2 billion in assets for Invista Capital Management. ``Once investor psychology starts turning, you can find something wrong with every stock.''

One of the day's largest losers was in wireless communications, an area that has already been hit hard. Nextel Communications plunged $5.81 - a 28 percent loss - to $14.63, after the company said its first-quarter results would be depressed by the slowing economy and rising costs.

Overall, though, technology stocks fell less sharply than others and did not erase their gains from Tuesday, when the stock market regained some of the ground lost in Monday's sharp fall. The Dow fell to its lowest level in a year, and the S&P 500 fell to a two-year low.

CAPTION(S):

photo, 3 charts

Photo: (color) no caption (Bear)

Chart: (1) DOW JONES

(2) NASDAQ

(3) S&P 500

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