A late afternoon rumor about an immediate cut in interest rates caused the market to soar from the depths Thursday, after the Dow Jones industrial average had flirted with official "bear market" territory.
Traders said a rumor reached the market in the last half hour of trading that the Federal Reserve was meeting to consider further and immediate cuts in interest rates to help boost the rapidly falling market. A Fed spokeswoman said no such meeting was taking place.
"The market is as vulnerable now to positive rumors as it is to negative rumors," said Bill Schneider, head of U.S. equity block trading at Warburg Dillon Read.
True or not, he said the rumor helped lift such heavily sold stocks as Bankers Trust Corp., up $5.3125, to $54.50; J.P. Morgan & Co. $5.375, to $79.875; and Merrill Lynch & Co. $4.75, to $42.50.
The Dow Jones industrial average, which dipped as far as 267 points by midday-a 20% drop from its July 17 peak-closed down only 9.78 points, to 7731.91. The Standard & Poor's bank index, which was off as much as 6.6% earlier in the day, closed down 0.78%.
But many analysts said they doubt the market has turned a corner.
"The basic trend is we're still in a bear market," said Ed Nicoski, technical analyst at Piper Jaffray & Co. "We've not seen any segment of the market holding any support." For all the excitement in the Dow, he noted that the broader Russell 2000 index closed the day down 3.7%.
The market got a jolt early Thursday when Abby Joseph Cohen, chief market strategist at Goldman, Sachs & Co. and one of Wall Street's most closely watched bulls, cut her earnings estimates for companies on the S&P 500 in 1999 by 4.6%. She cited "unusual developments in the second half" of this year.
Financial services stocks are the second-largest sector in the S&P 500, accounting for 16% of the index.
In a further sign of bear ascendancy, news of another interest rate cut in Europe-the Bank of England cut rates after Spain's central bank cut them earlier this week-did nothing to placate investors. Markets in Europe and Asia fell by 2% to 5%.
And M&T Bank Corp., Buffalo, reported 19% third-quarter earnings growth, yet its stock fell 3.3%, to $433.625.
Ralph J. Acampora, technical analyst at Prudential Securities, also said Thursday that the market could fall to 6500 before settling.
Citigroup Inc., the combination of Citicorp and Travelers Group, had a harrowing first day of trading. Its shares closed up 75 cents, at $32.50, though they had been off by as much as $2.875.
The company said that third-quarter earnings would be about 67% lower than the two companies earned separately the same time last year. One share of Citigroup stock equals two and a half old Citicorp shares, and one old Travelers share.
Michael Mayo, a bank analyst at Credit Suisse First Boston, said it appears Citigroup's third-quarter results would be worse than he expected and additional cuts to earnings estimates could be forthcoming.
But more than that, he said, shareholders in Citigroup must assess just how risky it is to invest in the stock.
Citigroup was formed with the idea of creating a company big enough to become immune to economic hiccups. But investors discounted how risky emerging markets could be, or what lending to hedge funds could entail.
"It's uncertain to what extent certain actions were more risky than previously thought, and there are questions as to what this could do to curtail revenue growth," Mr. Mayo said.