Wall St bear market drags Nasdaq below 2,000 mark

The worst bear market for the year dragged the Nasdaq down below the 2,000 mark, a fall of 6.2 per cent, yesterday, for the first time since mid-December 1998. The Dow Jones also fell more than 436 points, a drop of 4.1 per cent in its most dismal performance since last October. The big sell-off came after Cisco Systems, the largest high-tech employer in Silicon Valley, sent a shockwave through the weakening economy last Friday evening with an announcement of reduced earnings and big job cuts. Investors also began scrambling to get out of the technology sector in larger numbers after Sweden's Ericsson, the world's third biggest mobile phone maker and leading network infrastructure supplier, warned of a quarterly loss, pulling down its stock and those of rivals like Nokia.

The US markets were also affected by falling world markets, and political uncertainty in Japan where the Nikkei index finished the day at a 16-year low. Japan has suddenly become a big factor in dictating negative market sentiment, with new doubts about the viability of Asian economies.

Not just technology stocks were suffering on Wall Street. The Standard & Poor's 500 Index, which tracks the performance of America's 500 most valuable companies, was poised to enter bear market territory - a drop of 20 per cent - for the first time in 13 years.

Once again Wall Street is looking to US Federal Reserve chairman Mr Alan Greenspan for action on interest rates to give the stalled economy and the stock-markets a jump start. But the market is so volatile that it is reacting to every bit of economic news. Retail sales data today could restore confidence, but if better than expected could paradoxically drive the market lower as expectations of aggressive rate cuts are lowered. Wall Street is hoping now for a big rate cut but Mr Greenspan will likely only cut interest rates by 50 basis points at the Fed's next policy meeting on March 20th, said Bear Stearns chief economist Wayne Angell, adding that "would still leave the Fed well behind the curve".

The Nasdaq now is down more than 60 per cent from its March 2000 record high as profit warnings mount in the flagging economy. That drop surpasses its fall of 59.9 per cent during the 1973-1974 prolonged bear market.

Shares in Cisco, the world's top networking equipment maker for the Internet, dropped $1.75 to $18.88 in heavy trading after hitting their lowest level in more than two years. On Friday evening the company announced that it would lay off 5,000 of its 44,000 workforce.

Cisco missed analysts' earnings expectations for the first time in more than six years when it reported fiscal second-quarter results last month. Its second-quarter profit still surged 48 per cent and sales rose 55 per cent from the year-ago period. However, Cisco CEO Mr John Chambers, rang alarm bells when he said that he saw signs of the economic downturn beginning to spread into other global regions.

More than half of the Nasdaq's 25 most actively traded stocks plummeted to new 52-well lows including Cisco's rival Juniper Networks.