Down time

Published 11:47 am Tuesday, September 16, 2008

NEW YORK — U.S. stocks headed for a lower open Tuesday, a day after Wall Street’s worst day in years, as nervous investors awaited a decision from the Federal Reserve on interest rates.

While most investors last week expected that the central bank would leave short-term interest rates unchanged, the sharp sell-off Monday that left the Dow Jones industrials and the Standard & Poor’s 500 index down by more than 4 percent makes the Fed’s move harder to predict.

The bankruptcy filing of Lehman Brothers Holdings Inc. and the quickly assembled weekend sale of Merrill Lynch & Co. to Bank of America Corp. sent world markets reeling. Investors fear that tectonic shifts in the power structure of Wall Street signal that the financial sector’s trouble with imperiled credit are far from over.

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The Fed’s regularly scheduled meeting, which many economists had expected would be a pro forma occurrence, is now much anticipated, especially after central banks around the world have loosened money supplies this week. Central banks are hoping an injection of capital will help soothe markets following the most serious tumult of the 14-month-old credit crisis.

Some observers now predict the Fed will introduce a small interest rate cut, especially now that a sharp drop in oil prices since midsummer has helped ease policymakers’ concerns about inflation. Other economists say the Fed will indicate it would be prepared to cut rates in the coming weeks if markets don’t stabilize.

Beyond speculating on what moves the Fed might make, investors are also eyeing the latest woes of American International Group Inc. Worries about the well-being of the world’s largest insurer pummeled the stock again Monday, sending it down about 61 percent.

After the closing bell Monday, several ratings agencies reduced their ratings on the company. Lower ratings can add to the amount of cash the already cash-strapped company has to set aside. AIG shares fell 44 percent in premarket electronic trading.

Dow Jones industrial average futures fell 90, or 0.82 percent, to 10,869; on Monday, the Dow lost 504 points, its largest drop since the September 2001 terror attacks.

Standard & Poor’s 500 index futures fell 11.00, or 0.92 percent, to 1,185.10. Nasdaq 100 index futures fell 10.25, or 0.60 percent, to 1,711.00. Nasdaq futures had been higher but turned lower after Dell Inc. warned demand is eroding.

Investors also will be examining the government’s report on consumer prices, due at 8:30 a.m. EDT. Wall Street expects the Labor Department will report that a sharp drop in oil and gas prices helped lower its Consumer Price Index. Analysts expect the report will show a drop of 0.1 percent for August, according to a consensus of economists surveyed by Thomson/IFR.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.38 percent from 3.41 percent late Monday. The dollar was lower against other major currencies, while gold prices rose.

Overseas, markets in Asia fell sharply Tuesday after being closed Monday. Japan’s Nikkei stock average fell 4.95 percent. Hong Kong’s Hang Seng index lost 5.44 percent.

In afternoon trading in Europe stocks showed far more modest declines than on Monday. Britain’s FTSE 100 fell 2.69 percent, Germany’s DAX index lost 1.83 percent, and France’s CAC-40 fell 1.57 percent.

Some corporate news likely added to investors’ unease.

Dell warned that it sees a ‘‘further softening’’ in global demand in the current quarter. The computer manufacturer fell 5.5 percent in electronic trading.

Hewlett-Packard Co. announced plans Monday to cut 24,600 jobs, or about 8 percent of its work force, over the next three years as it works through its acquisition of technology-services company Electronic Data Systems Corp. HP shares were little changed early Tuesday.

Quarterly results are due early Tuesday from Goldman Sachs Group Inc., now of the few remaining independent investment banks on Wall Street, following this week’s faltering of Lehman and sale of Merrill and the near-collapse and forced sale of Bear Stearns Cos. in March.