Stocks Plunge as Fed Lowers Growth Outlook

A sharply lowered growth outlook from the Federal Reserve sent stocks plunging to fresh 5 1/2-year lows on Wednesday.

The Fed’s latest summary of economic projections show that members now expect the economy to hug the flat line next year, with estimates ranging from a 1% contraction to 1.8% growth, and unemployment to hit 7.1-7.6%.

The central bank is looking for 2-3% growth to return in 2010.

The Fed’s outlook differs sharply from the 2-2.8% growth that members predicted for 2009 back in June, before the mid-September stock market and economic shock that began with the bankruptcy of Lehman Brothers.

Along with worries about Citigroup (NYSE: C) and automakers and plunging consumer prices that raised deflation fears, the Dow tumbled 5% and the Nasdaq and S&P lost more than 6% each.

Yahoo (NASDAQ: YHOO) led the tech sector lower, falling 20% on news that Microsoft (NASDAQ: MSFT) isn’t interested in acquiring the company.

Symantec (NASDAQ: SYMC) and McAfee (NYSE: MFE) fell 9% and 7%, respectively, on Microsoft’s plans for a free security offering.

AMD (NYSE: AMD) and Micron (NYSE: MU) led a weak chip sector lower, with losses of 15% each. KLA-Tencor (NASDAQ: KLAC) fell 9% on layoff plans.

Flextronics (NASDAQ: FLEX) lost 14% after lowering its outlook.

The Nasdaq fell 96 to 1386, the S&P lost 52 to 806, and the Dow plunged 427 to 7997. Volume rose to 7.36 billion shares on the NYSE, and 2.42 billion on the Nasdaq. Decliners led by a 33-3 margin on the NYSE, and 25-3 on the Nasdaq. Downside volume was 98% on the NYSE, and 98% on the Nasdaq. New highs-new lows were 20-1037 on the NYSE, and 2-834 on the Nasdaq.

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