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USA TODAY でアメリカをよむコミュのStocks pounded as recession fears spread; Dow off 270

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NEW YORK — Stocks pulled back sharply for the second straight session Tuesday, after an unexpected contraction in the service sector rekindled investors' worry that the economy is headed for recession. The Dow Jones industrial average fell about 270 points, while bond prices surged.
The Institute for Supply Management's January report on the service sector, which accounts for about two-thirds of the economy, the service side of the U.S. economy contracted sharply . The index dropped to 44.6 last month from a revised reading of 54.4 in December.

A reading below 50 indicates contraction; it was the first service-sector contraction in more than four and a half years. Analysts had been expecting another month of growth.

It's possible the service sector could bounce back in February, like the manufacturing sector did in January after its troubling contraction in December. The benefit of the Federal Reserve's two big interest rate cuts in the latter part of January could also help spur the service sector back into growth mode later this year.

Still, the data were especially worrisome given last week's Labor Department report, which showed a net jobs loss in the U.S. economy in January — the first in more than four years. Together, the two reports indicate that the ongoing credit crisis is dragging down the actual economy.

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"The report drives a nail into the coffin from investors' minds that we're in a recession," said Todd Salamone, director of trading at Schaeffer's Investment Research. "That doesn't mean stock prices in the months ahead will be lower. But when you see headline numbers like this, there tends to be a reactionary sell."

An announcement from Fitch Ratings that it will lower the rating on more than half of the $220 billion wrapped up in bond funds called collateralized debt obligations added to the host of concerns plaguing Wall Street. Further downgrades would mean the securities — many of which are backed by mortgages — are worth even less than many investors thought. That could cause more problems for struggling banks, brokerages, and bond insurers.

Bond prices jumped as investors sought the safety of government-backed debt.

The biggest losers in the stock market were banks, which already suffered huge losses in their investment portfolios last year and are now socking billions of dollars away to prepare for debt-burdened consumers to stop making payments.

"When you have the financials in intensive care such as they are, for any economy like ours, they must heal," said Quincy Krosby, chief investment strategist at the Hartford. "They drew us into this; they must lead us out."

Meanwhile, Wall Street's enthusiasm over Microsoft's (MSFT) bid for Yahoo (YHOO)— which had helped investors brush aside Friday's wretched jobs data — started to dissipate. Banc of America Securities lowered its rating on Yahoo to neutral from buy, saying the proposed acquisition could run up against regulatory challenges, according to Dow Jones. The bank said regulatory difficulties could be steepest in the European Union.

Light, sweet crude oil was below $89 a barrel on the New York Mercantile Exchange, as traders bet that a slower economy could dampen energy demand. An extended drop in energy prices could buoy businesses that are finding their supply costs are rising, but that their customers are having trouble taking on price increases.

The dollar rose against most other major currencies, while gold prices fell.

Stocks also retreated overseas. Japan's Nikkei stock average closed down 0.8% and Hong Kong's Hang Seng index fell 0.9%. In afternoon trading, Britain's FTSE 100 fell 1.8%, Germany's DAX index fell 2.5%, and France's CAC-40 fell 2.7%.

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