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Markets end year with one last stumble

The stock market stumbled hard once more Friday as it wound up a brutal year that began with euphoria but ended with thousands of devastated investors and the worst returns in more than two decades.

Leading the dive from highs established early in the year were technology, media, telecommunications and Internet shares, which sent the Nasdaq Composite Index down 39.3 percent for the year, its worst annual loss. With Friday's drop of 87.24 to 2,470.52, the Nasdaq sits halfway below its record close of 5,048.62 on March 10. It was the 94th trading day of the year in which the Nasdaq fell 2 percent or more.

The prices of some popular Internet stocks now hover dangerously close to zero. More than two-thirds of stocks in the technology-laden Nasdaq were down 30 percent or more for the year, while a third of those traded on the New York Stock Exchange were off that much. In total, about $2.7-trillion in shareholder value evaporated in 2000.

The Dow Jones Industrial Average fell 81.91 points, or 0.8 percent, to 10,786.85. The S&P 500 dropped 13.94 points, or 1 percent, to 1,320.28. The losses came amid relatively high trading volume, with 1-billion shares changing hands on the New York Stock Exchange.

Even if, as many strategists expect, the second half of 2001 marks a revival of the market, the beginning of the year could continue to be rough. Forecasts of corporate earnings are being reeled in, and investors are waiting anxiously for the Federal Reserve to cut short-term interest rates.

"We are shaking off the bottlenecks and excesses of the last run," said William Rhodes, chief investment strategist at the Williams Capital Group, "and you have to do that to get ready for the next run."

It was also a year of embarrassment for the many Wall Street analysts who persisted in touting the new economy and technology companies long after their stocks began crumbling, and then ended the year talking about how the technology bubble had burst.

Perhaps the only comfort in this year's decline is the recognition that it followed a remarkable record of gains. All three major indexes had double-digit returns in each of the previous five years. And the Nasdaq, which fell the hardest this year, had double-digit returns in eight of the past 10 years, including an astounding 85.6 percent jump in 1999.

Moreover, outside of technology and e-commerce companies, the market did not do nearly as badly. Without technology stocks, the Standard and Poor's 500-stock index would have been up about 3 percent this year, reflecting the relatively strong performance of the old economy, as utilities, energy, tobacco, health care, bank and brokerage house stocks all had good years.

The best performers from the old economy _ such as Philip Morris, which surged 91.3 percent as fears abated about the damage from litigation _ helped limit the decline in the Dow to 6.2 percent for the year. But that was still the Dow's worst year since 1981, when it fell 9.2 percent.

The S&P 500, denied a positive return by the technology drag, finished the year down 10.1 percent, its worst year since an 11.5 percent decline in 1977. Among the most widely held stocks, Lucent Technologies plunged 81 percent, Xerox 80 percent and At&T 67 percent.

There were no economic reports released Friday to dampen expectations the Federal Reserve will cut interest rates next month to prevent a recession. And with no new profit warnings from major companies to darken the mood, the market actually rose in the morning. But with the deadline for 2000 tax losses looming, the rally quickly sputtered.

Analysts attributed some of the early optimism to hopes the market will benefit from the "January effect," the phenomenon where money raised by year-end tax selling flows back into the market. Those flows are supplemented by money from holiday bonuses and contributions to retirement plans.

These days, of course, investors hope the money will be put to work bargain-hunting in the battered technology sector. But analysts cautioned that it might take a while for investors to shake off the bruising experience of 2000, especially with so much uncertainty about a slowing economy and weakening profits.

"The tax selling is over after today, thank goodness, but I don't know if you have the right environment to witness people walking in Tuesday morning with their buying shoes on," said Charles White of Avatar Associates.

Not surprisingly, the heaviest dealings Friday involved many of the year's most prominent losers, which were weighed down by last-minute tax sellers, yet bolstered by those betting on a January bounce.

Lucent Technologies rose 38 cents to $13.50 as the most active NYSE issue. Right behind Lucent was former corporate parent AT&T, which has lost two-thirds of its market value this year, and America Online, which slid 55 percent during 2000. AT&T rose 31 cents to $17.25 and AOL slipped 45 cents to $34.80.

The most active Nasdaq issue was WorldCom, which rose 13 cents to $14.06, but finished with a loss of nearly 40 percent in 2000. Cisco Systems, one of the best performers of the 1990s, fell $1.31 to $38.25, down more than 30 percent for the year and more than 50 percent from a peak of $82 in the spring.

_ Information from the Associated Press was used in this report.