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Moneyline News Hour

Dow Climbs 59.34 to 11,139.15; Nasdaq Rises 5.06 to 3,958.21; FOMC Leaves Interest Rates Unchanged

Aired August 22, 2000 - 6:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WILLOW BAY, CNN ANCHOR: Tonight on MONEYLINE, Greenspan and company once again leave interest rates alone. Is a year-long war on inflation really over? Investors bet the answer to that question is yes. The blue chips and tech stocks advance on Wall Street. No rally for a company on financial life support: DrKoop.com slammed again, even after getting a last-ditch investment. Is Koop a lost cause? And quality may be job one, but damage control is now a close second: Ford, facing an uproar over Firestone Tires, takes to the airwaves.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I want all of our owners to know that there are two things we never take lightly: your safety and your trust.

(END VIDEO CLIP)

ANNOUNCER: This is MONEYLINE. Reporting tonight from New York, Willow Bay.

BAY: Good evening, everyone, and welcome to MONEYLINE. Stuart is off tonight. They came, they met, they did nothing. Alan Greenspan and the other Fed policy makers today decided to hold steady on interest rates again. The Central Bank hasn't taken any action since mid-May, when it pushed through the single-most dramatic hike in five years. Today's news was expected on Wall Street, but stocks initially surged, perhaps because there wasn't a lot of tough talk that came with the decision.

Still, the enthusiasm died down by day's end. The Dow shot up to its highest point since early April minutes after the decision was released. But the index had cut that gain nearly in half by the close, ending up 59 points at 11,139. Over 800 million shares traded. A bigger letdown on the Nasdaq, which was up 1.5 percent at its high for the session. It ended up just 5 points. Volume there was over 1.4 billion shares.

Allen Chernoff joining us now from the New York Stock Exchange with more on why the post-Greenspan rally lost its punch -- Allan.

ALLAN CHERNOFF, CNN CORRESPONDENT: Well, Willow, of course, the Fed's move was widely anticipated. Also widely anticipated was a sell-off on the news. But it took some time for that selling to build up. (BEGIN VIDEOTAPE)

CHERNOFF (voice-over): The surprise for many traders was the market's strength following the Fed's announcement. At Fed time, 2:15 Eastern, the Dow up 68. An hour later, it was up 107. Then selling kicked in, the industrials ending with of just 59. The Nasdaq most of its gain, and the S&P 500 ended with a loss.

JOSEPH MCALINDEN, MORGAN STANLEY DEAN WITTER: Prior to the news, the market had priced in no fed action, and that was evident in a pickup in the financial stocks, and a generally buoyant stock market through the last few weeks. There has been Fed anticipation rally this month, the Dow up nearly 6 percent, the Nasdaq Composite and the S&P 500 rising closer to 5 percent. Banks, the most interest- sensitive sector, kept their momentum today. J.P. Morgan and Mellon Financial hitting new 52-week highs. Bankings stocks are up 10 percent this month alone. And retail stocks enjoyed a bounceback after a recent sell-off. But these cyclical continued slumping on worries the economy may be cooling too much.

Iron and steel shares tied to the economy's cycles. Paper and forest product stocks also sold off, continuing their recent trend. Another point of concern, economically sensitive transportation stocks have been skidding recently. The Dow Transportation index dropping nearly 4 percent in the past week and a half as the Dow industrials climbing, a divergence, according to technicians who follow the Dow theory.

WALTER MURPHY, MERRILL LYNCH: If the Dow Industrials were to go to new highs and the Transports were not to go to new highs at the same time, that would be a nonconfirmation. That wouldn't be a real big real problem from the perspective of the Dow theory, but from a larger technical analysis point of view, that would be a fairly important negative divergence.

(END VIDEOTAPE)

CHERNOFF: The Dow theory, which does, of course, tie transportation stocks to the industrials, is no longer in vogue on Wall Street. But proponents say the longer the divergence against between the Dow and the transports, the more reason to worry about the overall market -- Willow.

BAY: Allen Chernoff, thanks.

As we mentioned, today's gain on the Nasdaq nearly evaporated, but the index did manage to close in the black, as it has in seven out of the past eight sessions. The gain over that period? More than 5 percent. John Metaxas joins us now from the Nasdaq marketsite with more on today's action -- John.

JOHN METAXAS, CNN CORRESPONDENT: Willow, the Nasdaq had a chance to finish above 4,000 for the first time in almost a month before pulling back almost to the break-even level. Biotechs and financial stocks were the leading sectors here. But there were movers within the technology sphere. Microsoft up almost 1 percent on the day it asked the Supreme Court to let its case go back to Court of Appeals before the Supreme Court considered it.

Rambus leading the chip sector higher, Rambus surging 8 percent today, after Intel's chief executive said Intel would continue to use Rambus products in its high-end chips. Business-to-business e- commerce stocks were strong. Commerce One benefiting from positive comments from Bear Sterns. Bear Sterns recommending several other stocks, which also did very well. And MP3.com surging 20 percent after announcing a settlement of the lawsuit by Sony against MP3 over copyright infringement. The Fed decision did not really spur buyers to come back into this market. Some of the traders are now saying we might have to way until after Labor Day for the action to pick up here.

Back to you, Willow.

BAY: OK, John, thanks.

John Metaxas at the Nasdaq marketsite.

For the second meeting in a row, the Fed gave investors a reprieve, holding back from raising rates. But that was only after policy makers had raised rates six times since the summer of '99. Taking a look at where rates stand tonight: The fed funds rate, what banks charge other banks for overnight loans, is at 6.5 percent, a nine and a half year high. The discount rate is at 6.0 percent. That's what the Fed charges banks for loans. And the prime rate is at 9.5 percent. That's what banks charge their best customers.

Kelli Arena looks at not what policy makers did, but what they said, for clues on the Fed's next move.

(BEGIN VIDEOTAPE)

KELLI ARENA, CNN CORRESPONDENT (voice-over): Alan Greenspan chose a path that many predicted he and Fed policy-makers would take today, leaving interest rates unchanged -- for now.

They concluded that -- quote -- "Recent data have indicated that the expansion of demand is moderating."

MICKEY LEVY, BANK OF AMERICA: The crux of the message is the Fed feels comfortable to keep the Federal Funds Rate at 6 1/2 in order to pursue their objective of stable, low inflation.

ARENA: But the Central Bank was far from sounding the all-clear.

(on camera): The Fed did say in its statement that it remains concerned about the tight labor market.

(voice-over): And that -- quote -- "The risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures.:

DIANE SWONK, BANK ONE: There saying there is a race between productivity growth and wages, and I think that the laws of supply and demand show that the wages typically win. UNIDENTIFIED MALE: The message for the market is that while the Fed is on hold, they are still concerned that the risk of inflation going up, is higher than the risk of a significant slowdown in the economy.

ARENA: Even so, many economists do believe the Fed is done tightening for the year, but policy-makers do meet three more times in 2000.

Kelli Arena, CNN Financial News, Washington.

(END VIDEOTAPE)

BAY: A bigger reaction today on Wall Street to the Fed's decision than in the bond market. Bonds got a small bounce early on, but the gains dissipated and trading was light. The 10-year issue gained just two ticks, the yield at 5.77 percent. The 30-year, a loss of three ticks. The yield there, 5.71 percent.

The question now that will haunt Wall Street and the bond pits: Is the Fed really finished? Policy-makers haven't touched interest rates all summer, giving stock market investors hope that Greenspan has declared victory in the latest war on inflation. That was the force behind today's modest market advance.

But Peter Viles joins us now with more on why any victory celebrations may be premature -- Peter.

PETER VILES, CNN CORRESPONDENT: Willow, we have seen a cautious rally this month, as investors place their bets that maybe the Fed really is done raising rates. But the thing is, this economy is unlike any other in history, and we don't really know right now if it's slowing down or just taking a breath here before resuming another sprint.

(BEGIN VIDEOTAPE)

VILES (voice-over): Alan Greenspan has waged war on inflation under four presidents in three decades. But this battle is different. Greenspan keeps firing away, but the economy refuses to surrender. Since the Fed began raising rates last June, economic growth shot from 2.5 percent to 5.2 percent. According to the latest statistics, the core rate of inflation inched up from 2.1 percent to 2.4. Unemployment fell from 4.3 to 4.0, and the employment cost index rose from 3.2 percent to 4.4.

MIKE RYAN, PAINEWEBBER: I think is fed is still walking a tightrope. We have still-strong growth. Even though it's moderated, it's still moderated at a very high level, so they're still walking this very narrow tightrope between, again, some moderation of the economy but still-strong growth and still-tight labor markets.

VILES: The Fed has succeeded in slowing the housing market. Housing starts are down 11.3 percent from year-ago levels, and new home sales down 10.percent. And the Fed helped prick the bubble in technology stocks. The Nasdaq is down 21.6 percent from its March peak.

ELIZABETH MACKAY, BEAR STEARNS: Investors have been introduced, or reintroduced, to the idea that when you buy stocks, it entails risks, and I think the Fed is somewhat satisfied with that, with their role in that.

VILES: When the Fed calls a cease-fire in its war on inflations, investors usually celebrate with a stock-market rally. But this time it is not clear the Fed is done, and a big rally might even tip the balance toward another rate hike.

WILLIAM DUDLEY, GOLDMAN SACHS: I think reality is though that the bond market rally and the stock market rally we've had over the last couple months are probably going to provide a little bit more fuel for the economy. So our best judgment at Goldman Sachs is that the economy is going to be a little bit firmer than expected. And the prospects of Fed tightening will come back early next year.

(END VIDEOTAPE)

VILES: Most economists now expect the economy will grow at a between-four-and-five percent rate this year. So one thing the Fed may have accomplished by staying on the sidelines today is silencing those critics who have been saying for years that this Fed the anti- growth -- Willow.

BAY: Pete, but still, Alan Greenspan would prefer to see growth closer to that four percent rate, not five.

VILES: That's the belief, although he doesn't articulate these growth target -- the belief: He would be a little more comfortable if the economy is closer to four, as you said, then five.

BAY: Peter Viles, thank you.

Investors certainly harbor some confidence that the Fed has helped rein in the economy. Our first guest tonight says even the Fed itself was sounding more confident that it was succeeding, but you would only catch that if you read the fine print of today's announcement.

Merrill Lynch chief economics joins us now.

Bruce, after doing some reading of that fine print, why do you think the Fed -- what indicated to you that the Fed was more confident that his slowdown was for real?

BRUCE STEINBERG, MERRILL LYNCH: In the minutia of the announcement they made today, there were three points that stood out compared to the last time they did this in June, when they also didn't tighten. Back in June, they said the signs -- that demand was moderating, but they said "maybe." This time they said "is."

BAY: Demand is moderating.

STEINBERG: Is moderating. (CROSSTALK)

STEINBERG: Back in June, they said the signs were tentative. They didn't say anything about tentative this time. And this time they said that rising productivity was increasing the growth potential of the economy, something they didn't mention last time.

BAY: And is that rising productivity does that have an enormous amount to do with today's decision?

STEINBERG: Oh, it has so much to do with it. I mean, were running out of superlatives for the American economy now in terms of how good it is. But productivity has risen five percent in the last year. This is just incredible. And as a result of that, there's just no inflation pressure out there.

BAY: What did your reading of the fine print on what they had to say about the risks tell you?

STEINBERG: Well, I think they are feeling more comfortable. They are not willing to sound the all-clear. They certainly don't want the markets to get ahead of themselves. But my assessment is that the Fed is done. They're finished.

BAY: You think we're at -- that this is it?

STEINBERG: Yeah, this is it.

BAY: So, I mean, but do you think it's premature then to be celebrating victory? Have we concurred this inflation thing?

STEINBERG: Well, the markets are obviously not celebrating victory yet. They're hopeful that the Fed is done. But the Fed is still keeping them enough on edge that there's a certain caution, which the Fed also wants to induce right now.

BAY: Right, I mean, the markets in fact have been helping the Fed a bit, I would imagine.

STEINBERG: Exactly.

BAY: What do you think we will see on the markets from here?

STEINBERG: Well, historically, when the Fed is finished, the equity market has actually performed quite well in the six months and year following the end of tightening cycle. This time may be a little different...

BAY: Because?

STEINBERG: ... because the cycle is so different than anything we've seen before. But my guess is that stocks do well.

BAY: Is oil a wild card in there?

STEINBERG: It is a wild card. Oil prices right now are higher than almost anyone expected them to be at this time. But in all likelihood, they are still going to move lower between now and the end of the year. So if they to that, that will be good.

BAY: Bruce Steinberg, always a pleasure to see you. Thanks for joining us.

Coming up on MONEYLINE: Ford throws a p.r. offensive into gear on a drive to stem the damage from the Firestone tire crisis. Did the auto-maker act fast enough? Plus, investors give DrKoop.com a shot in the arm. But is cash alone going to save this ailing Web site? And Microsoft's latest word on its break-up battle with Washington. Is this fight heading all the way to the highest court in the land? Stay with us.

ANNOUNCER: From CNN's New York headquarters, this is the MONEYLINE NEWS HOUR.

(COMMERCIAL BREAK)

BAY: Checking tonight's MONEYLINE "Movers": DSL.net surged more than three, a 99 percent gain. The provider of high-speed date communication said today it will become IBM's bandwidth provider. It's DSL service will be part of Big Blue's monthly prescription service. Newgen results gained more than three on volume more than 10 times its daily average. The provider of direct-marketing information is being bought by TeleTech for approximately $200 million in stock.

Evoke Communications jumped more than three or 45 percent. CIBC World Markets started coverage of the Web conferencing company with a strong buy rating, and set an $18 price target. And Mercator Software lost just over three. The business software-maker finally released its quarterly financials today and restated its earnings for the first half of the year.

Since delaying the filing last week, Mercator shares have plunged more than 50 percent. A last ditch effort today by Microsoft to have a lower court hear its appeal: It's up to the Supreme Court to decide whether it will hear the case or send it down to a lower court.

Steve Young has the story in tonight's "Tech Watch."

(BEGIN VIDEOTAPE)

STEVE YOUNG, CNN CORRESPONDENT (voice-over): The brief Microsoft filed with the Supreme Court today is Bill Gate's final answer as to why the highest court in the land should not wave directly into the most important antitrust case in two decades. The company argues the Federal Court of Appeals should first narrow complex issues. That lower court has sided with Microsoft before.

The company says the need for soundness in the result outweighs the need for speed in reaching it. And Microsoft claims the government wildly exaggerates the damage that would result from delays. Many antitrust experts say Microsoft is trying to have it both ways. KEVIN ARQUITE, ROGERS & WELLS: They have pointed to the fact that tens of thousands of businesses build their products around Microsoft, that millions of consumers use it every day, that the PC is the center of the global economy. And it's very inconsistent to now come in and to claim that it is the government that's exaggerating the significance of the case.

YOUNG: Microsoft goes further than it has been before in criticizing District Court Trial Judge Thomas Penfield Jackson on grounds that he's biased and committed procedural errors. And many experts believe that privately, the Justice Department agrees Judge Jackson should have held hearings before issuing his break-up order.

BILL KOVACIC, GEORGE WASHINGTON UNIVERSITY: I have to think that the government plaintiffs at that moment thought: Oh no, the cart is swerving off the path. We're headed for a ditch. Things have gone very well so far, but they've taken an ominous turn. In many ways, Judge Jackson has put the government plaintiffs in a box. And essentially, they're asking the Supreme Court to give them an exit path.

(END VIDEOTAPE)

YOUNG: Based on the pattern of the last few years, experts say by the second week in September, the Supreme Court could announce whether it will hear the landmark antitrust appeal directly or take it downstairs -- Willow.

BAY: And what are the odds here?

YOUNG: Remote. The strong probability is that it will go to the Court of Appeals.

BAY: Steve Young, thanks.

Still to come, we'll give you the latest on the powerful typhoon that's over Taiwan today in the MONEYLINE "News Digest."

(COMMERCIAL BREAK)

BAY: ... several stocks hit 52-week highs today, including Ciena, Citigroup, Compaq Computer, and Juniper Networks.

Turning now to news outside the business world, two big storms on the weather map.

Joie Chen joins us now from Atlanta for the "MONEYLINE News Digest" -- Joie.

JOIE CHEN, CNN ANCHOR: Willow, thanks.

Heavy rains and winds reaching 160 miles an hour battered Taiwan today while Hurricane Debby swept across the Caribbean. Typhoon Bilis wiped out power to tens of thousands of people on Taiwan. Airports were closed and rail service was stopped. Two people were reported killed in that storm, which is moving across Taiwan and toward mainland China. Authorities said they were worried about flooding as the typhoon moved inland.

Closer to the United States, Hurricane Debby is approaching Puerto Rico. The storm skirted to the north of the U.S. Virgin Islands today, bringing rain and high winds. U.S. airlines canceled many flights to the Caribbean. Forecasters say the hurricane will strengthen over the next few days. Puerto Ricans stocked up on groceries and boarded up windows.

That storm, if it stays on course, could reach southern Florida by the end of the week.

In Washington today, investigators said the crash of TWA Flight 800 four years ago was not caused by a criminal act. Officials from the National Transportation Safety Board said the cause was most likely a fuel tank explosion sparked by an electrical fault.

(BEGIN VIDEO CLIP)

BERNARD LOEB, OFFICE OF AVIATION SAFETY, NTSB: All of the participants agreed that none of the wreckage exhibited any of the damage characteristic of a high-energy explosion: that is of a bomb or a missile.

(END VIDEO CLIP)

CHEN: Flight 800 crashed into the Atlantic shortly after takeoff from New York's Kennedy Airport in July of 1996, killing 230 people.

In Russia, President Vladimir Putin today declared a day of mourning for the 118 sailors who died in that submarine disaster. He also met with the families of the victims. Putin has been criticized by the Russian media for waiting too long to accept offers of help from other countries to rescue the sailors from the sunken sub.

These are some of the day's top stories. Join us for more news on "THE WORLD TODAY" coming up tonight at 8:00 p.m. Eastern, 5:00 Pacific. We hope to see you then -- Willow.

BAY: Thanks, Joie.

Still to come on MONEYLINE, the Verizon strike: a liability for the company, right? Or maybe wrong? Could a walkout by workers be just what a brand-new company needed? That's next.

(COMMERCIAL BREAK)

BAY: In spite of today's market rally, several stocks hit 52- week lows, including Deutsche Telekom, Lands' End, Sprint, StarMedia, and U.S. Steel.

It's day 17 in a strike against Verizon. Today, there are still about 35,000 Verizon workers from New Jersey to Virginia off the job. That's after more than 50,000 employees went back to work on Monday, having reached a tentative deal with the company.

While the strike may be a nuisance to customers and to workers, there's speculation it could have helped the company. Verizon -- the result of the Bell Atlantic-GTE merger -- had launched a national campaign to introduce its new name to the world. Public relations experts say it probably wasn't necessary. The high-profile strike, they argue, may have done more for Verizon's name recognition than the ad campaign.

The chairman of Weber (ph) Public Relations tells "The Wall Street Journal" that the strike probably brought Verizon -- quote -- "millions of dollars worth of awareness."

Coming up in our next half hour, we'll have more on how Wall Street respondent to the Fed decision on interest rates, plus a look at the struggling retail stocks. As the economy slows down, is it time to buy in or is it time to bail out?

(COMMERCIAL BREAK)

ANNOUNCER: MONEYLINE continues. Here again, Willow Bay.

BAY: In tonight's headlines, Alan Greenspan and his Fed colleagues leave interest rates unchanged, winning applause from Main Street and Wall Street. A medical Web site gets a lifesaving shot of adrenaline, but will the fresh cash be able to pull DrKoop out of intensive care? Plus, Ford tries to ease people's fears over faulty Firestone tires. We'll look at how worries over those tires could weigh on SUV sales.

But first more on tonight's top story: Wall Street breathed easy after the Fed, as expected, stayed the course on interest rates. Stock prices slipped on the news, but most investors took the rate decision in stride. Blue chip stocks kicked off the day with a bang, rising as much as 110 points before cutting its gains after the Fed announcement. The Dow closed up 59 at 11,139.

A similar story for the Nasdaq, which posted a strong showing in the morning, then lost momentum after 2:15, ending up only five points at 3,958.

The Fed's decision to stand pat on rates left the key Fed funds rates steady at 6 1/2 percent, which means most consumer rates will stay at current levels. The bond market had little reaction to the Fed's decision. The 10-year note rose two ticks to yield 5.77 while the 30-year long bond fell slightly.

But it was stocks that had the most dramatic response.

Allan Chernoff kept tabs on all of today's action, and we go back to him now at the New York Stock Exchange -- Allan.

CHERNOFF: Thank you, Willow. You know, the old saying is "Buy on the rumor and sell on the news." There certainly was plenty of selling in the last hour of trading here at the New York Stock Exchange. Of course, the indices did end in the plus column, but the breadth of the market not impressive at all today. Here at the New York Stock Exchange, only 100 more gainers than losers. And at the Nasdaq, there actually were 19 more losers than gainers. Let's have a look at how some of the sectors did in the market today. First of all, you'll see some of the winners. Biotech stocks, very strong: up 2 1/2 percent over there. They're up 17 percent over the past month.

Banks continuing their run, the brokers as well, up more than 1 percent. And semiconductor stocks: They have been on fire, gaining 1.1 percent today.

Among the losers, you'll see the drug stocks, off just a fraction of a point here, but a lot of cyclical stocks took it on the chin: chemical, airlines, forest, and paper products among the cyclical losers. Of course, the Fed thinking that they don't need to raise interest rates anymore could lead to worries on Wall Street as to where the economy is headed from here, perhaps slowing too much. Wall Street always needs to worry about something, and one thing that some traders are worrying about right now, what is it that could possibly push the market higher with the good news on the Fed all factored in?

Willow, back to you.

BAY: Allan Chernoff at the market, thank you.

Another sector that took comfort from today's Fed news, retail stocks. In recent months they have taken a beating, depressed by signs that American consumers are beginning to rein in their spending.

Susan Lisovicz takes a look at why retail investors are worried about the future.

(BEGIN VIDEOTAPE)

SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): There's an old expression that "When the going gets tough, the tough go shopping." That's not true in this slowing economy.

In recent months, retailers as diverse as Saks, Office Depot, Gap, Kmart, and American Eagle Outfitters have warned Wall Street to lower its profit expectations.

The numbers say it all: This year's first-quarter profits for retailers rose a respectable 17 percent. But S&P 500 profits on average increased nearly 24 percent over the same period. The gap widened in the second quarter. Retail earnings increased 10 percent, but the S&P 500 overall advanced more than twice that.

Higher gas prices have been blamed for the consumer pullback and so have higher interest rates by the Federal Reserve.

GEORGE STRACHAN, GOLDMAN SACHS: The Federal Reserve's impact on spending occurs through various circuitous ways, through the housing market, et cetera, and perhaps through the wealth effect, as they seem to have intended, trying to slow down the irrational exuberance of the market. Clearly, they've had some impact on the markets.

LISOVICZ: Especially retail stocks. Goldman Sachs analyst George Strachan downgraded his entire group of retail stocks in early May because he says leading indicators were pointing to a slowdown. And investors have also spoken by dumping retail stocks.

The S&P retail index has plunged nearly 20 percent year to date, while the Standard & Poor's 500 is up 2 percent. The most recent retail report shows August sales are down from July, which in itself was not exactly a gangbuster month.

Analysts say poor fashion acceptance has been another problem plaguing retailers. Macy's is hoping to reignite consumer interest this summer with its back-to-school selections, which features Hot Wheels backpacks for boys, Pleather for girls, and dark denim for everyone.

ROBERT BUCHANAN, A.G. EDWARDS & SONS: We're hearing a lot of talk about leather and about fur. I think that's probably going to help spending at the high end in some instances, but I don't think it's going to have a broad-based appeal that some retailers would hope that it would have.

(END VIDEOTAPE)

LISOVICZ: First Call reports that retailers are projecting on average a nearly 12 percent jump in profits for the third quarter. But many analysts say recent sales trends, earnings warnings suggest they'll never hit it. Indeed, some analysts say retailers would serve themselves well by budgeting and buying to reflect a slower-spending environment -- Willow.

BAY: Susan, are we getting any sense about back-to-school shopping?

LISOVICZ: We are getting early indications. Two reports out today, two different reports, both showing weakness in August, and that is the single-most important factor for August sales, back to school.

BAY: Susan, thanks.

LISOVICZ: Sure.

BAY: Some retailing stocks rebounded today, but those gains followed heavy losses. Wal-Mart edged up nearly 3/4, but it is still off 30 percent from its 52-week high. Target and The Gap gained 1 1/4, but The Gap is down nearly 50 percent from its high. Limited up nearly 1 1/2, and Tiffany picked up almost one.

And still to come, we'll tell you what Ford is doing to address consumer concerns over the safety of tires on its popular Explorer sports utility model.

(COMMERCIAL BREAK)

BAY: A stunning admission from Mitsubishi Motors: The Japanese car company said it hid key documents from the government for more than two decades, much longer than previously acknowledged. Mitsubishi admits that it concealed safety documents and customer complaints since September of 1977. The company also said division heads and some board members were involved in the coverup.

An internal investigation by Mitsubishi revealed that two-thirds of dealer reports, which contain information on customer complaints and defects, were withheld from the Japanese Transport Ministry from April 1998 to June of this year. And as a result of the probe, Mitsubishi announced today a recall of 88,000 vehicles from 11 different models.

In tonight's "MONEYLINE Focus," we take a closer look at another recall, Firestone's recall of 6 1/2 million tires. And since most of those tires were installed on Ford's Explorer sport utility vehicles, the automaker is going on the offensive to head off growing consumer concern.

Here's Greg Clarkin with more on Ford's damage control.

(BEGIN VIDEOTAPE)

(BEGIN VIDEO CLIP, FORD COMMERCIAL)

JACQUES NASSER, PRESIDENT & CEO, FORD MOTOR COMPANY: I want all of our owners to know that there are two things that we never take lightly: your safety and your trust.

(END VIDEO CLIP)

GREG CLARKIN, CNN CORRESPONDENT (voice-over): That was Jacques Nasser, CEO of Ford, in a primetime commercial. The spot is part of an offensive by Ford to repair the damage from the Firestone tire crisis: 62 deaths have been attributed to the faulty Firestone tires, three coming after Bridgestone/Firestone announced a recall two weeks ago.

The recent fatalities include a former California police chief and a Florida surgeon.

Ford is shutting three plants for two weeks to free up replacement tires for many of its Explorer and light truck models. The move will cut production by 25,000 units, cost the company roughly $100 million, and shave about 5 cents off Ford earnings.

GARY LAPIDUS, GOLDMAN SACHS: There's no question that what's far more important than whether they lose, you know, 25,000 units and a nickel a share is the ongoing effect on the brand franchise and the customers willingness to walk into a Ford dealership and buy an Explorer with Firestone tires.

CLARKIN: Explorer sales have slipped in the last week. The company now estimates it will sell 39,000 units for the month, down from its goal of more than 42,000.

Firestone parent Bridgestone will begin airlifting tires from Japan to do its part to help speed the replacement process. But crisis managers have been critical of both companies, saying they were slow to react in the early stages, allowing the media to define the problem.

RICHARD NICOLAZZO, CEO, NICOLAZZO & ASSOCIATES: Once that story is framed, it is extraordinarily difficult to break the frame of that story. So from a consumer perspective, focusing on tire pressure and a lot of those other issues really didn't deal with the issue at hand. People that drive cars want to know when they drive that automobile that it's safe.

CLARKIN: Firestone executives defended their handling of the problem.

JOHN LAMPE, BRIDGESTONE/FIRESTONE: We acted very quickly, very decisively, voluntarily making this safety recall so we could address the concern of our consumes and even ensure their safety.

CLARKIN: One lasting effect of the crisis is expected to be on the relationship between Ford and Bridgestone.

JOHN CASESA, MERRILL LYNCH: I have got to believe that the controversy surrounding this brand of tires is not good for Ford, and as a result, it will in time shift its sourcing. It's just not reasonable to believe that Ford will continue to risk lost sales over a component that they can resource.

(END VIDEOTAPE)

CLARKIN: Analysts say ford will be under a cloud in the short term as litigation lingers over the automaker and whether any design features of it's SUVs are to blame. As for Firestone, many predict the damage could be far more severe and far longer lasting, with some even predicting the demise of the brand -- Willow.

BAY: Greg, thank you.

Here to talk more about what this massive recall means for both Ford and Bridgestone is Sue Zesiger, automotive editor at "Fortune" magazine.

Sue, welcome.

You cover Ford, you cover the industry. How do you think Ford is responding to this?

SUE ZESIGER, "FORTUNE" MAGAZINE: They were slow on the uptake, Willow, but they've really kicked in since then.

BAY: A good idea for Jack Nasser to take to the airwaves?

ZESIGER: Absolutely.

BAY: Can you assess the financial impact, starting with Ford? What do you think the financial impact will be on the company?

ZESIGER: Well, I think if you look at the stock price, even in the last few days, since Jack Nasser stepped out in the spotlight, it's really come back really strong. You know, the residual is about a five percent hit. If Ford really does what it says and spends as much as it will take to put all of this behind it, I think that they will be fine.

BAY: So the impact will be short term for Ford?

ZESIGER: Absolutely.

BAY: Bridgestone?

ZESIGER: Bridgestone is where it's going to really take a hit, you know?

BAY: Can a company like Bridgestone, with a brand like Firestone, recover from something like this?

ZESIGER: Absolutely. This is not a deal breaker for them, but it really is going to hurt them with other automotive manufacturers.

BAY: Do you think it's possible that Ford will change its supplier?

ZESIGER: I think they'll look at that, but I think there may be a sort of panic in the air that will subside. This was from a very specific period of the time manufacturer, where there were some non- recurring workers in the plants because of a strike situation. I think that could blow over.

BAY: Sue Zesiger, thanks.

ZESIGER: Thank you.

BAY: Coming up, investors throw a financial lifeline to a foundering Web site. But will it be enough to keep DrKoop.com afloat?

(COMMERCIAL BREAK)

BAY: Topping tonight's "MONEYLINE Movers," MP3.com shares surged better than 1 1/2, or more than 20 percent, on news today that it has settled the copyright infringement lawsuit brought against it by Sony Entertainment. Level 3 jumped nearly three. It signed a long-term deal today to provide bandwidth to privately held Internet provider, Relera. Under the agreement, Level 3 will be paid about $30 million a year. And Ariba gained 2 1/2. Bear Stearns started coverage of several b-2-b's today, calling Ariba the blue-chip stock in the sector. The firm rated it a strong buy and set a $180 price target. Other b-2-b players also gained on Bear Stearns comments, including Claris and FreeMarkets. And for aggressive investors, the firm recommended Opus 360, which soared nearly 82 percent today.

Just hours after saying it was running out of money, DrKoop.com today received a new financial lifeline. The ailing Medical web site is getting an infusion of cash and a new management team.

But as Bruce Francis reports, the question remains whether this will be enough to keep it alive.

(BEGIN VIDEOTAPE)

BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): It was a scene worthy of "ER" -- the vitals were flatlining, the patient was losing buckets of the red stuff -- in this case, ink -- but at the last minute, a critical infusion brings the injured back from the brink. DrKoop.com announced that a group of investors will pump at least $20 million and up to $27.5 million into the struggling online health information company. The convertible shares were sold as 35 cents each, a deal that will reduce the value of existing common stock when the new ones are registered. And the investment group has installed a new CEO and new board members.

But analysts wonder if that will be enough.

ERIC BROWN, FORRESTER RESEARCH: The management team has to, in fact, set a new agenda. It has to turn the ship a little bit, and it's going to be that new direction that I think reasserts people's confidence in the company, not another round of life-sustaining funds and a new set of management.

FRANCIS: DrKoop.com declined to be interviewed for our story, but one investor, Gerry Cramer, told MONEYLINE that his bet on DrKoop.com was -- quote -- "wild speculation. The company was virtually dead." Cramer says that he believes in the management team led by new CEO Richard Rosenblatt, a former Excite@home executive. But Rosenblatt and team will have to fight against a difficult downward spiral for DrKoop.com, which has never turned a profit.

In an SEC filing, the company acknowledges that bad financial news about the company leaves new advertisers to hold off on orders and existing conditions for hold out for discounts. Creditors also demand tougher terms and earlier payments, and it becomes harder to retains and improve workers, and of course less cash means less marketing and brand building.

CLAUDINE SINGER, JUPITER COMMUNICATIONS: A miracle could occur and you could see a turnaround. It's really very doubtful. DrKoop.com is in an intense downward spiral that has a tremendous amount of unfortunate momentum behind it.

(END VIDEOTAPE)

FRANCIS: The stock has had some momentum behind it, too, but not the kind that investors like to see. The stock traded once at over $45, a little more than a year ago, but is now down nearly 98 percent since then. You can't get down much more than that really.

BAY: No, that's pretty painful. What do they have to do? It sounds impossible. But what do they have to do to turn it around?

FRANCIS: Part of it is getting a management team in there that can really inspire confidence so they can start announcing partnerships, figure out new strategies, and then communicate that to the investing public.

BAY: Things they have not necessarily done before. FRANCIS: It's very hard to do that when your in that kind of downward spiral that we were describing.

BAY: Thank you.

We should point out, that despite the fresh cash, DrKoop.com lost 25 cents to close at just over $1.

There's at least one big-name stock worth less than DrKoop -- Reliance Group Holdings. And now Bloomberg is reporting that Saul Steinberg's floundering company has given up control of its finances to state insurance regulators. In an SEC filing, Reliance said it will seek approval from the Pennsylvania insurance regulators before making big transactions, taking big withdrawals from its bank accounts or selling assets, and the insider is set to meet tomorrow in Chicago with regulators from several states. Analyst tell Bloomberg that the company may be ordered not to pay dividends in an effort to safeguard policy holders.

Reliance is facing a huge debt payment at month's end and said last week it may seek bankruptcy protection. The stock closed down 1/32, the level 3/16.

Coming up, could tech stocks be headed for another big tumble? We'll ask stock-watcher Vince Farrell why he sees more trouble ahead. He will get the last word. That's next on MONEYLINE.

(COMMERCIAL BREAK)

BAY: The Fed's meeting is behind us. And most Fed watchers figure little chance of a fall rate hike. But the last word on the Fed and its implications for Wall Street goes to our next guest who sees trouble in the offing. Veteran market watcher Vince Farrell joins us now.

Vince, welcome back.

VINCE FARRELL, SPEARS BENZAK: Thanks, Willow.

BAY: We had a rosy economic outlook. We had a nice little pre- Fed rally. But you say trouble ahead?

FARRELL: Well, I think there's trouble for those stocks that are anticipating that the economy is going to grow significantly in the second half. It's going to be slow. And while earnings in tech land will be good, they just won't be as good as we would have thought a couple months ago.

BAY: But you think there's a significant downside ahead in the Nasdaq?

FARRELL: Well, I think there's the potential for significant downside, but it's the 20...

BAY: Significant meaning?

FARRELL: A double-digit decline.

BAY: OK.

FARRELL: What you have is the two biggest stocks in Nasdaq, for example, are trading well north of a 100 times earnings. And that's just too much for earnings that are going to be good but slower than a couple of months ago.

BAY: All right, good but slower.

FARRELL: Yes, now, if something you thought was going to grow at 40 percent grows at only 30, gee, 30 is fantastic, but it ain't 40. And if you price the stock for the 40 percent growth, you're disappointed.

BAY: Now, you're not saying that we should avoid techs all together, that investors should avoid them altogether, are you?

FARRELL: No, I think you want to avoid those that have those multiples, that I think would be unsustainable, even if the earnings growth rate were to be achieved. But if you take a look at the devastation that has occurred in some areas, there are real opportunities. We just bought our first shares of Lucent, for example, our first shares of AOL. I think those are down significantly, but represents...

BAY: They are down. Lucent's down there as well.

FARRELL: Yes, it represents terrific opportunities. I don't know if they are at the bottom. But they're close enough to the bottom with good enough business prospects that a lot of the bad news is discounted, and offer very good opportunity for the next couple of years.

BAY: So hunt around for those opportunities. What do you see on the Dow? Are we going to see -- will we see -- where will we see the impact of a slowing economy?

FARRELL: You'll see wobble, wobble, wobble, as far as the Dow goes, but most of those stocks you're king of anticipating. So many of those are big, heavy industrial companies, where we already know that the slowdown is factored in. I do think there are areas that very attractive for investment. One, financial stocks look extremely good, especially if the Fed indeed is done.

BAY: Any particular ones that you like there?

FARRELL: AmSouth as a regional-bank example -- Washington Mutual as a savings-bank example -- CIT Financial as a finance company -- and Excell or any of the property-casualty insurance companies look very good today.

BAY: And energy, some names you like there.

FARRELL: Yes, I think the energy stocks are probably anticipating that oil is going to trade between $18 and $20 dollars a barrel. And while I don't think it stays at $32, I don't think it goes to $18 or $20. I like especially the natural gas side. One stock that has lagged the natural gas rally is Burlington Resources. But I think the group that might do very well would be the service companies. And you want to see some drillers in your portfolio.

Big deal yesterday between two drillers, but the one I like is Rowan Drilling, RDC in the New York Exchange. They got about 22 rigs, most of them drill in hostile waters. And I think there's going to be a lot of business coming their way.

BAY: That was a convincing argument for Rowan, Vince Farrell, as always. And thank you for having the last word tonight.

FARRELL: Thank you, Willow.

BAY: Up next, "Ahead up of the Curve": some of what you need to know tonight before those markets open tomorrow. You are watching MONEYLINE.

(COMMERCIAL BREAK)

BAY: In the wake of today's Fed meeting, Wall Street will get a break tomorrow from major economic news. Taking a look at some of what could move the markets, VA Linux, which makes servers using the Linux operating systems, reports fourth-quarter results. Tomorrow, investigators are expecting a loss of 15 cents a share.

And to stay a step ahead of the markets, tune in to "AHEAD OF THE CURVE" tomorrow morning at 5:00 a.m. Eastern right here on CNN. And MONEYLINE wants to hear from you. Send us your comments, questions and general feedback by e-mail to moneyline@cnn.com.

And finally tonight, a programming note: MONEYLINE is going West, blazing a path into the heart of the new economy.

(BEGIN VIDEOTAPE)

BAY (voice-over): We are hitting the road, traveling from Southern California to Silicon Valley to the Pacific Northwest, talking to CEOs who have Wall Street buzzing and investors sitting pretty.

UNIDENTIFIED MALE: We've made a lot of people very rich.

BAY: Broadcom, JDS Uniphase, Exodus, and Nike, trailblazers reshaping the new West and the global economy.

(END VIDEOTAPE)

BAY: We'll hit the ground running starting September 5th, as MONEYLINE goes coast to coast right here on CNN.

That's MONEYLINE for this Tuesday. I'm Willow Bay. Good night from New York.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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