Wall St again hopes Greenspan performs

After the late winter storm that hit share prices last week, sending the Dow into a freefall and the Nasdaq to a two-year low, Wall St is once again looking to Mr Alan Greenspan to help repair the damage.

Twice in January, the Federal Reserve chairman gave the falling markets a temporary boost by cutting the inter-bank lending rate by two half points. Now some analysts anticipate another reduction even before the next scheduled meeting of the Fed on March 20th.

With optimism for a second half recovery beginning to wane, they will be watching closely what Mr Greenspan has to say when he testifies before Congress again on Wednesday.

The uncertainty is likely to mean a volatile week for the US dollar which fell sharply against the euro and the yen after Friday's heavy stock selloff on Wall Street, following profits warnings from Motorola and Sun Microsystems.

In a panic atmosphere currency traders dumped their dollars, pushing the euro up more than 1.5 cents in New York trading.

The late winter storm analogy came from Ms Lynn Reaser, chief economist for Banc of America Capital Management, commenting after a string of profit warnings cut 6.7 per cent of the technology-heavy Nasdaq last week - it has now lost a staggering 56 per cent of its value in less than a year - and pulled down the Dow Jones Industrial Average by 3.3 per cent.

"The stock market had difficulty finding traction during the week as earnings warnings from stalwarts such as Sun Microsystems and EMC indicated that no part of the technology sector is weatherproof," said Ms Reaser. "The chill also spread to broader areas of the market."

This week a plethora of new data on the economy will help Mr Greenspan make up his mind whether to cut the interbank lending rate before the scheduled March 20th meeting of the Federal Open Market Committee.

The market has already factored in an anticipated cut from 5.5 per cent to 5 per cent on that date.

The most important indicator will be the February consumer confidence figures, due tomorrow. Spending is crucial to the rapid elimination of excess inventories and to the ability of companies to continue with upgrading and development plans.

The consumer confidence index dropped 14 per cent in January, bolstering speculation that a recession was on the way.

Some analysts speculate that by reducing interest rates again, huge cash reserves held in money market mutual funds could be released into the market, becoming the rocket fuel for the next bull market.

These funds are earning one per cent less interest since the rate cuts in January. A record $309.3 billion went into stock mutual funds in 2000, according to the Investment Company Institute, an industry trade group, eclipsing the old record of $227.1 billion in 1997.