A sharp decline in US consumer confidence figures yesterday added to the gloom on Wall Street which this week dragged US equities to their lowest levels in five years.
The Dow Jones Industrial Average remained under pressure yesterday although, in early trading, the Nasdaq Composite and S&P 500 indices steadied after their recent steep declines.
The University of Michigan consumer sentiment index fell to 86.5 this month, the lowest since just after the September 11th terrorist attacks. Although a separate report showed a sharp increase in June retail sales, it did little to lift the mood among investors.
Some observers believe the universal gloom in the market represents so-called "capitulation" which could pave the way for recovery in stock prices.
Mr Richard McCabe, chief market strategist at Merrill Lynch, said: "The market is really digging in its heels. But the question is how much capitulation is enough capitulation for this market to show signs of recovery? The Nasdaq may have bottomed but the Dow could go lower."
By close, the Dow was down 117.00 to 8,684.53, a decline of 1.33 per cent, but still almost 600 points above its September low.
The Nasdaq Composite was down 0.88 to 1,373.55 and the S&P 500 fell 5.97 to 921.4.
Tech stocks, which were among the hardest hit this week, were boosted by upbeat corporate profit forecasts from Dell Computer and Juniper Networks. Despite the rise in the Nasdaq, analysts remained sceptical about Wall Street's ability to hold on to its gains.
Mr Alan Ackerman, chief market strategist at Fahnestock & Co, said: "There are those who think we hit bottom but after the bloodletting this week, my view is that this market climate has been so negative, nasty and volatile that anything can happen."
A fall in the consumer sentiment index added to market nervousness because the strength of consumer spending has been one positive factor offsetting the crisis of confidence sparked by the wave of corporate accounting scandals.
The fear is that if the consumer stumbles, this could jeopardise the pace of the economic recovery, removing the main support for stock prices.
Stock prices for retailers have sagged towards post-September lows over the past few months. Economic figures over the past week generally suggest the recovery from last year's recession continued through June, a point Mr Alan Greenspan, Federal Reserve chairman, is expected to make in testimony to Congress next week.
But some economists fear the turmoil in financial markets could stunt or disrupt it, by undermining consumer and business confidence.
The US commerce department said yesterday that retail sales rose 1.1 per cent last month following May's 1.1 per cent decline. The figures suggest that US consumer spending grew at an annual rate of roughly 3 per cent in the second quarter.
While the stock market attempted to regain its footing, government bond prices were mostly unchanged by midday as the Treasury market took a break from a multi-day rally that had taken yields down to eight-month lows earlier in the week.
Mr Subodh Kumar, chief investment strategist at CIBC World Markets, said: "Emotions have been pushing the stock market lower and now it has reached very inexpensive levels versus bonds."
