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Terror Attack Could Weaken Investor Confidence - 2001-09-12

Wall Street remains shrouded in uncertainty, one day after the terror attack on the World Trade Center closed U.S. financial markets.

The attack on the World Trade Center knocked out a lot of the physical structure for the U.S. stock market. However, analysts say the more devastating effect could be a further weakening of investor confidence.

The U.S. economy is barely growing. Corporate profits have been slumping. And now the most optimistic hopes for the beginnings of a recovery in the fourth quarter or early next year have been put on hold by an act of terror.

Some experts are expecting Wall Street to at least match Tuesday's market losses in Europe and Asia, when trading in New York reopens.

The markets hate uncertainty of any kind. During the Gulf crisis in the early 1990s, the U.S. stock market fell abut 20 percent between the time Saddam Hussein invaded Kuwait and the U.S. led bombing campaign against Iraq.

The worst fear on Wall Street is that all the uncertainties that come out of Tuesday's attack will linger. Few doubt that there will be a negative economic fall-out.

The Federal Reserve Board, the U.S. central bank, took fast action Tuesday by making sure banks had enough money. But Jeremy Siegel, a professor of finance at the Wharton Business School in Pennsylvania, says the "Fed" has to do more. He says another interest rate cut would help.

"The Federal Reserve, I think very definitely, should step in now and give a confidence-boosting 50 basis point drop in rates because I think we'll need it," Mr. Siegel said. "Certainly we know that certain industries are going to benefit. Other industries are going to suffer. Travel, entertainment, restaurants, hotels. It's going to be extremely severe."

Some analysts are worried that the telecommunications sector will be especially hard hit. Businesses, they fear, will put off even more buying new technology. Capital spending has been down all year because of the softening economy.

Another big issue for U.S. business is how American consumers will react to Tuesday's terror? Will they put off big purchases for the foreseeable future? The consumer so far has kept the U.S. economy growing. And many economists assumed that consumer confidence, while drifting lower recently, would hold up well enough.

But Tuesday's events struck terror at the general sense of well being.