NEW YORK - A recurrence of investors' anxiety about the economy gave Wall Street its biggest loss in five weeks.
The major indexes fell 1 percent Tuesday as investors worried that the market's steep gains in the past month could unravel if the economy doesn't show more signs of strengthening.
Warnings about the health of banks and uneasiness ahead of the Federal Reserve's economic statement Wednesday led investors to dump financial stocks and wade into defensive areas like government debt.
Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy is likely to be gradual.
But many analysts said investors weren't panicking Tuesday. They were taking a much-needed pause following a rally that seemed to be going at breakneck speed. The Standard & Poor's 500 index had reached at its highest level since last fall, rising 15 percent in just four weeks and 49 percent from a 12-year low in early March.
"This sort of give-and-take is quite healthy," said Erik Davidson, managing director of investments at Wells Fargo Bank in Carmel, Calif. "You're up 50 percent in five months. That's 10 percent a month ... that's five years worth of returns."
Moreover, traders often become jittery when the Fed policymakers meet to discuss interest rates. It is widely expected that the central bank will hold interest rates at their historic low of essentially zero, but investors are waiting to see what the Fed has to say about the economy when the meeting concludes today.
Thai Silver Jewelry "It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.
There were some troubling developments during the day. Downbeat comments from Dog Tag Pendant analysts about banks weighed on the market. Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.
"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.
With many traders on vacation, volume was light, which tends to skew price moves.
According to preliminary calculations, the Dow Jones industrial average fell 96.50, or 1 percent, to 9,241.45. It had been down as much as 121 points. It was the biggest drop since July 7, when the index lost 161 points. The Dow slipped 32 points Monday.
The broader S&P 500 index also had its worst day since July 7, falling 12.75, or 1.3 percent, to 994.35.
The Nasdaq composite index fell 22.51, or 1.1 percent, to 1,969.73, while the Russell 2000 index of smaller companies fell 9.75, or 1.7 percent, to 562.12.
About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded Monday.
The Chicago Board Options Exchange's Volatility Index spiked in a sign of investors' nervousness. The VIX, also known as the market's fear index, rose 4.1 percent to 26.01, its highest level in a month. It is down 35 percent in 2009 and its historical average is 18-20. It reached a record 89.5 in OctobeChristian Louboutin Shoes
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