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WALL STREET: White House plan fails to lift stock market gloom

NEW YORK – THE White House’s effort to boost the economy with a US$150 billion (S$216 billion) stimulus plan failed to lift market sentiment as stocks tumbled for a fourth day on Friday, closing out the worst week for the S&P 500 in five years.

Investors’ main worry was that the effort may not prevent a recession.

The Dow Jones Industrial Average was down 59.91 points, or 0.49 per cent, at 12,099.3 on Friday, its lowest close in 10 months. The Standard & Poor’s 500 Index was down 8.06 points, or 0.6 per cent, at 1,325.19, a 16-month low. The Nasdaq Composite Index was down 6.88 points, or 0.29 per cent, at 2,340.02, a 10-month low.

For the week, the S&P fell 5.41 per cent, its biggest weekly percentage drop since July 2002. The Dow fell 4.02 per cent, and the Nasdaq slid 4.1 per cent.

‘The fear is that the plan, and even the Fed, may not have enough firepower to turn the path to recession around,’ said Mr Richard Sparks, senior equities analyst at Schaeffer’s Investment Research in Cincinnati.

Stocks erased earlier gains after President George W. Bush said a government plan to stimulate the economy should be about 1 per cent of gross domestic product, or as much as US$150 billion.

‘There is so much fear in the market that gains just don’t stick. Traders are using any attempt at a rally to sell out of their positions,’ Mr Sparks said.

Said Mr Michael Mullaney of Fiduciary Trust Co in Boston: ‘There’s still a general malaise in the overall equity market, and even this may not be enough to keep us out of a recession. Part of the problem is it’s just not as much as was anticipated by the market.’

Meanwhile, there continues to be a debate among economists on measures announced to give a kick to the economy.

The Congressional Budget Office, for example, said that temporary, one-time-only changes in tax policy like those suggested in the stimulus package may have only a moderate effect relative to permanent changes like lower income tax rates.

Many economists also say that a drawback to Mr Bush’s proposals, as outlined so far, is that they might not put cash in the hands of people most likely to spend it: those at the lower end of the income spectrum.

Mr Bush signalled that he would limit rebates to people who pay federal income taxes, which rules out many low and middle income people.

Mr Robert Greenstein, executive director of the Centre on Budget Policy and Priorities, is one of many liberal economists urging that the tax rebate be in the form of a credit for children, or some form of credit for the Social Security taxes they pay.

Without such improvements, he said, Mr Bush’s plan ‘would save fewer jobs and do less to shore up a weak economy than it should’.


Source: Reuters, New York Times (The Straits Times 20 Jan 08)

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