By LISA SINGHANIA

Associated Press

NEW YORK — The Nasdaq composite index fell to its lowest level in more than a year today after the Federal Reserve indicated it was worried about the slowing economy, but declined to cut interest rates.

Blue chips also tumbled when Wall Street, which had rallied on hopes of a rate cut, again focused on earnings and fears of a possible recession. Analysts said investors were especially spooked by the Fed’s recognition that the economy may be slowing too much, too fast.

"The market’s worried about earnings, and this tells us that it isn’t going to get better anytime soon," said Gary Kaltbaum, a technical analyst at JW Genesis. "As soon as the Fed mouthed its words about the economy, stocks — especially the Nasdaq which is already in a downturn — got whacked again."

The Nasdaq closed down 112.81 to 2,511.71, a 4.3-percent drop, its lowest level since August 1999 and the index’s sixth straight losing session.

The Dow Jones industrial average fell 61.05 to 10,584.37, a nearly 0.6 percent loss, after gaining as much as 139 points earlier in the session.

The Standard &amp Poor’s 500 index fell 17.14 to 1,305.60, a loss of more than 1 percent.

Trading was heavy and extremely volatile after the Fed announcement, which cut short a morning rally in technology and what would have been the second straight session of blue chip gains.

"Financial stocks and Microsoft did not do well and Wal-Mart’s down," said Arthur Hogan, chief market analyst at Jefferies &amp Co. "We got a little present from (Federal Reserve Chairman) Alan Greenspan, and I guess we wanted a bigger one. Now we’ve got to concentrate on earnings again."

Wal-Mart was off $2.56 at $48. Target Corp. fell $2.94 to $28.75, a 9 percent drop. Morgan Stanley Dean Witter dropped 25 cents to $69 after rallying early in the day despite reporting earnings well below Wall Street estimates.

A gloomy earnings forecast also sent SBC Communications SBC down $6.75 to $46.56.

Technology issues dropped as well.

Microsoft was off $3.06 at $44.75 on reports the company plans to cut costs as it boost some salaries. Sun Microsystems dropped $1.63, or 5.7 percent, to $26.94.

"The stock market right now is jumping around based on worries about the economy and earnings," said Robert Christian, chief investment officer at Wilmington Trust. "I think we’re in for a choppy period that’s going to extend into next year."

In its statement today, the Fed indicated it was shifting its focus to economic weakness, rather than inflation because of "eroding consumer confidence" and "substantial shortfalls in sales and earnings."

Todd Clark, head of listed trading at WR Hambrecht, said the market’s negative reaction reflected disappointment by many on Wall Street who had been banking on an interest rate cut, as well as fears about where the economy is headed. The market views lower rates as necessary to stimulate the slowing economy and jump-start slumping corporate profits.

"The market got a little ahead of itself in expecting an interest rate cut right away," Clark said. "We didn’t get the cut but … to go from saying there is a risk of inflation to a risk of recession is as aggressive as the Fed’s going to get."

Advancing issues and decliners traded nearly evenly on the New York Stock Exchange, where volume came to nearly 1.59 billion shares, compared with 1.44 billion at the same point Monday.

The Russell 2000 index fell 4.47 to 458.78.

Overseas, Japan’s Nikkei stock average fell 2.4 percent. Germany’s DAX index was up 1.4 percent, Britain’s FT-SE 100 was up 0.8 percent, and France’s CAC-40 rose 1.2 percent.

Copyright ©2000 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.