Investors in New York pounded stock prices broadly lower after deciding that a quarter-point interest rate cut by the Federal Reserve would not be enough to rescue fourth-quarter corporate earnings.

On Wall Street, the Dow Jones industrial average dropped 237.90 points - or by 3 per cent - at 7,842.62.

Broad market indices lost ground as well. As ebullient as bond investors were, stock investors were equally unhappy, fearing the Fed's move would not give corporate profits enough of a lift.

The lower interest rates are a "strong shot across the bow that deflation is much more serious than we thought", said Mr Hugh Johnson, chief investment strategist at First Albany Corp.