Dow tumbles to two-month low on interest rate fears

Wall Street yesterday suffered its worst session in two and a half months as the Dow Jones index tumbled almost 150 points on renewed fears of terrorism and the prospect of a rebound in interest rates.

Sentiment will be further hindered today by fourth quarter results from technology bellwether Cisco Systems released after the session close. Cisco registered a slight fall in sales and warned of continuing weak demand. In after hours trading the shares fell from $18.86 to $18.05, after dropping 40c before the close.

The Dow closed at 9,036, a drop of 1.6% and the biggest one-day decline since May 19. The Nasdaq was hit by an even steeper percentage decline, dropping nearly 41 points, or 2.4%, to 1,673.

There was other damaging news from the retailer Costco Wholesale, which fell 18.5% to $30.06 after cutting its earnings estimates for the full year.

Gillette turned in better than expected second quarter earnings of $338m, a 15% gain on last year. But the consumer goods firm warned it would face increased competition from the number two in the wet shaving market, Wilkinson Sword-Scheck, which was bought earlier this year by Energizer Holdings.

Gillette yesterday announced plans to launch a three-blade version of its Sensor shaving system next year. Scheck is outpacing it, and is planning the launch of the first four-blade razor next month, named Quattro. Gillette fell 16c to $30.21.

Investors in the broader markets were shaken by the bomb that ripped through a hotel in Jakarta, Indonesia. They were also unsettled by rising interest rates - since the middle of June, the 10-year treasury note has risen to about 4.4% from just over 3%. Economists are concerned that an increase in the price of borrowing could put the brakes back on the still unsteady recovery.

Analysts have also begun to question whether stocks have risen too far too fast this year. The concerns overcame a report showing a surprisingly strong growth in the US services sector. The Institute for Supply Management said its index of non-manufacturing activity jumped to 65.1 in July, the highest reading in its six-year history.

Cisco sales during the quarter that ended July 26, fell to $4.7bn, from $4.83bn. Profits were 27% higher at $982m.