Street retreats as investors await Fed minutes

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NEW YORK -- Wall Street extended its retreat Tuesday as investors cautiously awaited minutes from the Federal Reserve's last meeting that could provide insight into whether it may cut rates. The Dow Jones industrials dropped more than 140 points.

There was little news to affect trading. But the market's overall difficult mood since the turbulence of earlier this month coupled with light volume helped skew price swings -- especially ahead of the Fed report.

"There's no real reason why we've dropped as steeply as we have, you're seeing incredibly light volume amid continuing credit and housing concerns," said Ryan Larson, senior equity trader with Voyageur Asset Management. "You're not seeing enough buyers around to support these levels, and stocks are just going to trickle to the downside."

He and other analysts said the market is waiting to hear what came out of the central bank's Aug. 7 meeting, when policymakers held rates steady and said that although tight credit and the housing market may drag on the economy, inflation remains its predominant concern. The market has since tumbled further from record levels of mid-July and the Fed, raising worries about the market turmoil's effect on the economy, lowered the discount rate, the interest it charges banks.

Although the Fed has indicated since the meeting it will take the steps needed to contain damage to the economy from market turbulence, investors nonetheless may shudder if the Fed's minutes suggest it is unwilling to waver in its stance against inflation. Policymakers will next meet on Sept. 18, when economists project they will move to cut rates.

The Conference Board's report that consumer confidence sagged in August amid volatile financial markets and ongoing housing problems added to the downbeat mood on the Street. Keeping alive credit worries, a Standard & Poor's housing index showed that U.S. home prices in the second quarter posted the sharpest decline since 1987, when the index was started.

In late morning trading, the Dow fell 140.63, or 1.06%, at 13,181.50.

Broader stock indicators were also lower. The Standard & Poor's 500 index was down 17.27, or 1.18%, at 1,449.52, and the Nasdaq composite index shed 33.13, or 1.29%, to 2,528.12.

On Monday, the stock market pulled back from last week's strong gains after a report said sales of existing homes slipped in July for a fifth straight month to their slowest pace in nearly five years.

Fixed-income investors were encouraged by the consumer confidence report, which could indicate the Fed will be more likely to lower rates at its September meeting. Bond prices rose, with the yield on the benchmark 10-year Treasury note falling to 4.55% from 4.57% on Monday.

The dollar was lower against other major currencies, while gold prices were slightly lower.

Light, sweet crude fell 69 cents to $71.28 a barrel on the New York Stock Exchange. Oil prices fell last week on credit worries and as Hurricane Dean missed U.S. oil facilities in the Gulf of Mexico. They have rebounded in recent days, though, due to refinery problems and strong gasoline demand.

Analysts said there just wasn't much to encourage investors ahead of the Fed report, which will be released at 2 p.m.. EDT. There was little in the way of corporate news to inject enough optimism into the markets.

"The Fed is still really important, especially with not much out there to trade off of," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. "We're in this void period where for another month or so until earnings come out, and the market is going to be very jittery with swings we haven't been used to in the last few years."

The S&P housing report pushed shares of homebuilders lower. When home prices fall, owners have a hard time refinancing, which can lead to more defaults and delinquencies.

Hovnanian Enterprises Inc. fell 47 cents, or 4.2%, to $10.79. Luxury homebuilder Toll Brothers Inc. dropped 73 cents, or 3.3%, to $21.27. D.R. Horton Inc. declined 54 cents, or 3.6%, to $14.67.

Pharmacy benefits management company Medco Health Solutions Inc. said it will pay $1.5 billion in cash for diabetes treatment supplier PolyMedica Corp. Shares of Medco rose 16 cents to $86.27, while PolyMedica surged $6.37, or 14.1%, to $51.66.

The Russell 2000 index of smaller companies was down 11.36, or 1.44%, at 778.09.

Declining issues beat out advancers by a 3 to 1 basis on the New York Stock Exchange, where volume came to a light 373.8 million shares.

Overseas, Japan's Nikkei stock average fell 0.09%, while China's Shanghai Composite Index gained 0.91% to another record. In afternoon European trading, Britain's FTSE 100 fell 1.12%, Germany's DAX index fell 0.38%, and France's CAC-40 fell 1.23%.
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