Wall Street slides despite rebound in US confidence

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Hopes of an end to the American recession surged yesterday as new figures showed a rebound in consumer confidence and a rise in spending on manufacturers' goods.

But the upbeat outlook for the economy did nothing for Wall Street, where worries about profit levels and rumours of more accounting scandals sent the benchmark Dow Jones index tumbling 2.5 per cent.

The bullish figures appeared to confirm expectations that the Federal Reserve will leave interest rates on hold when it announces its decision this evening. The Conference Board, a private research group, said its index of consumer confidence surged to 97.3 in January, beating economists' forecasts.

In a sign consumers are becoming much more optimistic about the economy's prospects over the next six months, the expectations index surged to its highest level in more than a year, up to 96.9 in January from 92.4 in December.

The expectations index is now up more than 25 points since the October plunge after the 11 September terrorist attacks. However, consumers' views of the current situation was unchanged.

Meanwhile, orders for expensive manufactured goods rose in December, rising 2 per cent to $176.4bn (£122bn) after a 6 per cent slump in November.

The gain in orders for the month was stronger than the 1.3 per cent increase forecast by economists and included a 13.3 per cent rise in semiconductor orders and a 10.8 per cent increase in defence goods.

Economists said it confirmed the Fed was unlikely to cut rates today. But they doubted it would be enough to prompt the Fed to remove its "bias" towards further rate cuts.

Anthony Karydakis, a senior economist at Banc One, said: "It's another little sign adding to the premise that the economy's turning the corner. We're a very long way from reaching levels prior to the economy going into the recession, but we're improving a little bit."

Although shares rose slightly after yesterday's reports, traders were quickly distracted by a decision by the energy trader and pipeline operator Williams to delay the release of its full earnings report.

The Dow index dropped 247.5 points to end at 9,618.2, while the hi-tech dominated Nasdaq fell 50.9 to 1,893.0.