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US Market Recovers After Dip on WorldCom Accounting Scandal - 2002-06-26

On Wall Street Wednesday, closing prices were mixed after a rollercoaster trading day on news of vast accounting improprieties at WorldCom, the number two long-distance carrier in the United States.

The Dow Jones Industrial Average dipped 6.7 points to close at 9,120. The broader Standard and Poor's Index closed down 2.6 points. But the technology-weighted NASDAQ composite rose more than 5 points.

Stock prices veered wildly throughout the trading day, at one point sinking 200 points.

WorldCom dominated the news following the company's announcement that it had overstated its earnings by almost $4 billion and would cut 17,000 jobs. Not long ago, WorldCom was the fifth most-widely held stock in the United States. Now many market analysts predict the company will file for bankruptcy. They also voice concern about other telecommunications stocks. Telecommunications analyst Scott Cleland fears a ripple effect from the WorldCom crisis.

"We took 29 of the top publicly-traded telecom companies," he explained. "If you do some standard financial analysis of whether somebody is at risk of bankruptcy, 24 of the 29 are technically at risk of bankruptcy. So what we have is a downward spiral telecom dynamic. We call it the telecom debt spiral where one company, when it goes down, creates a suction effect that pulls others into the abyss."

NASDAQ halted WorldCom trading early in the day. There is no word yet on when it will resume. But WorldCom's announcement sent markets tumbling across Europe and Asia.

Meanwhile, the U.S. central bank decided for the fourth time this year, to leave interest rates unchanged.