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NEW YORK (Reuters) - U.S. stocks crumbled on Friday, dragged down by technology issues, after a report showing an inflation-free economy failed to ease growing worry that interest rates may keep rising.
Wall Street ignored news that January consumer prices rose less than expected and instead focused on Federal Reserve Chairman Alan Greenspan's Thursday warning that the speeding economy needs to step on the brakes.
``The Fed is starting to raise rates and they basically said they are going to continue to raise rates until the economy cools down or the stock market cools down,'' said Ricky Harrington, technical analyst and senior vice president at Wachovia Securities in Charlotte, N.C.
``We had some pretty good inflation numbers this morning and when the market turns down on this news, it is a sign of internal weakness in the market,'' he said.
The Dow Jones industrial average (^DJI - news) slid 295.05 points, or 2.81 percent, to 10,219.52, putting the 30-stock index back in correction mode, with a drop of more than 10 percent -- 11.11 percent -- from its Jan. 14 high of 11,722.98.
The Dow's drop was its seventh-largest point decline ever, leaving the index at a four-month low.
For the week, the Dow index fell 205.69 points or 1.97 percent.
Pulling down the Dow were its interest-rate-sensitive financial names such as American Express Co. (NYSE:AXP - news), off 10-3/16 at 137-3/4, and J.P. Morgan (NYSE:JPM - news), down 3-3/4 at 109-1/8.
Oil giant and Dow component Exxon Mobil (NYSE:XOM - news) lost 1-5/16 to 76-9/16 as crude oil prices fell on talk that producers were prepared to increase production in March, traders said.
Adding to the volatility was the fact that the session marked ``double witching,'' or the simultaneous expiration of stocks and index options, as well as the last trading period ahead of a three-day U.S. holiday weekend.
Both the stock market and the bond market will be shuttered Monday in observance of the President's Day holiday. On Friday, the bond market closed early, at 1 p.m. EST, ahead of the holiday.
The broader Standard & Poor's 500 index (^SPX - news) fell 42.17 points, or 3.04 percent, to 1,346.09, leaving it down 35.20 points or 2.54 percent for the week. Friday's drop was the fourth-largest point decline ever for the S&P.
The technology-weighted Nasdaq composite index (^IXIC - news) logged its seventh-biggest point drop ever, dropping 137.18 points, or 3.02 percent, to 4,411.74 on Friday, after a slump by the biotechnology sector, which had helped the index rally to a record close on Thursday. For the week, the Nasdaq index gained 15.53 points or 0.35 percent.
A glitch struck the Nasdaq market's operating systems at about 11:30 a.m. EST, preventing the No. 2 U.S. stock market from updating the Nasdaq composite index for two-and-a-half hours.
``I think Greenspan is a pretty good explanation for what is going on,'' said Pierre Ellis, a senior economist at Primark Decision Economics in New York. ``He wants to paint a picture that excess demand is being caused by the stock market ... When the Fed is saying the market is part of the problem, it's hard for the market to go up.''
For a sign of how dire things got, traders pointed to the white-hot biotechnology sector, which lifted the Nasdaq to a record on Thursday while the blue chips sold off.
On Friday, the Nasdaq biotech index (^IXB - news) slipped 2.01 percent.
Analysts said Wall Street brushed off the latest inflation data showing January's overall Consumer Price Index rose just 0.2 percent, while economists had expected a 0.3 percent increase.
Excluding the volatile food and energy sectors, the core CPI also advanced 0.2 percent -- in line with estimates.
The 30-year U.S. Treasury bond, however, did not disregard the news and jumped nearly a full point, or 30/32, pushing the yield down to 6.15 percent from Thursday's close of 6.22 percent. The rise in the long bond's price represents a gain of .375 for each ,000 of face value.
``It looks ugly,'' said Phil Orlando, chief investment officer at Value Line's Asset Management division, said of the stock market.
``Everyone is still focusing on their hangover from Greenspan's testimony. The economic news was fabulous and you would have thought you would have a rally, if stocks had focused on the economy and the bond market,'' he said.
The slide began on Thursday after Greenspan in his twice-a-year Humphrey-Hawkins testimony to Congress signaled more interest-rate hikes may be necessary to rein in the galloping economy.
Greenspan regains the spotlight next Wednesday with the second part of his Humphrey-Hawkins testimony, giving Wall Street ample time to worry about what he might say about interest rates. The Fed has already raised interest rates four times since last June.
In other economic news, the U.S. trade deficit surged by 65 percent in 1999 to a record .31 billion despite a slight improvement in December.
The stocks pullback was widespread, with paper, bank, oil, utilities and building materials stocks edging lower, along with technology names that had rallied a day earlier.
The few sectors avoiding the flogging included precious metals, advertising, tires and retail apparel.
Among some of the big Nasdaq losers, shares of Global Crossing Ltd. (NasdaqNM:GBLX - news) closed 8-11/16 lower at 52-3/8 after the No. 5 U.S. long-distance telephone company's pro forma fourth-quarter loss widened and its revenue growth was slower than some analysts expected.
Computer giant Microsoft Corp. (NasdaqNM:MSFT - news), which is also a Dow component, slipped 4-9/16 to 95-1/16 despite favorable comments from Wall Street analysts.
Novell Inc., (NasdaqNM:NOVL - news) a developer of software for networked computers, reported on-target earnings, as it said it had tightly managed expenses during its seasonally slowest quarter of the year. But Novell's stock slumped 8-15/16 to 34-1/8.
The Philadelphia Stock Exchange's semiconductor index (^SOXX - news) was off 4.38 percent while Internet companies were still under more pressure. TheStreet.com's Internet index (^DOT - news) tumbled 4.18 percent.
On the New York Stock Exchange, the most active stock was Wal-Mart Stores Inc. (WMT.N.), which fell 1-3/16 to 47-3/4 on volume of 15.22 million shares, reflecting pressure on retailers that consumers' fears of rising interest rates could curb spending and hurt retailers' profits.
The second-biggest mover on the NYSE was drugmaker Schering-Plough Corp.(NYSE:SGP - news), which was down 3-1/8 at 35-3/4. On Friday, COR Therapeutics Inc. (NasdaqNM:CORR - news) said had raised million in financing to help market an anti-clotting drug for heart patients called Integrilin, which it is co-developing with Schering-Plough. COR Therapeutics stock fell 7/16 to 56-13/16 on Nasdaq.
Student Loan Corp. (NYSE:STU - news) fell 5-1/2 to 41-7/8 after the U.S. financial services giant Citigroup Inc. (NYSE:C - news) said it had ended merger talks with the originator of student loans. Citigroup, a Dow 30 component, was down 1-1/8 at 51-3/8.
Newly public Agilent Technologies Inc. (NYSE:A - news) rose 11-7/8 to 94-1/2 after the maker of testing equipment for the communications business beat Wall Street's earnings targets.
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