Investors have taken a wait-and-see attitude about the stock of Wall Street brokerage firms since the Federal Reserve's decision last month to cut interest rates.

Shares of Merrill Lynch & Co., Morgan Stanley Dean Witter & Co., and Lehman Brothers were all down Tuesday as Fed Chairman Alan Greenspan told a Senate committee that he expected the economy to remain sluggish throughout 2001. Speaking before the Senate Banking Committee, Mr. Greenspan said slow growth would continue and there would be a slight increase in unemployment. The outlook for long-term prosperity was solid, he said.

The drop in share prices at Merrill, Morgan Stanley, and Lehman came as "investors are debating the strength of the operating environment," said Dean Eberling, an analyst at Keefe, Bruyette & Woods Inc. Retail banking has performed well, but investment banking has been up and down, he said.

"Reading the tea leaves is as difficult today as two months ago" when interest rates were cut, Mr. Eberling said. "Stocks are doing well and then poorly. It is way too early to put your finger on the pulse of one trend."

The markets are anticipating another rate cut in March during the next scheduled Federal Open Market Committee meeting. The Fed could opt for a 25- or 50-basis-point move.

Morgan Stanley shares closed down nearly 1% to $80.10 in trading Tuesday. Its 52-week high was $110. Merrill Lynch shares slid 2.35% to $69.65, and Lehman Brothers shares dropped 2.50%, to $82.88.

Financial shares in general reacted poorly to Mr. Greenspan's testimony. The American Banker index of 50 bank stocks fell 0.8%, while the index of 225 bank stocks fell 0.9% .

Mr. Eberling called the drop in stock prices "another mixed picture." Even with the cut in interest rates, the market is still operating cautiously. "It is early," Mr. Eberling said. "Now we are going to settle in and make decisions about winners and losers."

Bryan C. Paul, an analyst at PNC Advisors who follows Merrill Lynch, said an uncertain economy is playing a role in stock prices. "The market is unsure," he said. "Any statements that continue to fuel the economy are good for the capital markets."

With a strong economy, the firms can continue bringing initial public offerings to market and produce revenue, Mr. Paul said.

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