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    Fed Chairman Warns of Continued Economic Difficulties

    Retail sales decline deeply in September, although gas stations saw increases.

    NEW YORK -- Weak corporate profit forecasts are raising fears of an extended economic slowdown, as Wall Street tumbled again Wednesday and Federal Reserve Chairman Ben Bernanke warned even if markets stabilize "broader economic recovery will not happen right away."

    Following a report that consumers reduced their spending at the fastest pace in more than three years in September, Bernanke reiterated the central bank will use all its powers to combat economic and financial stresses, but did not indicate whether another interest rate cut is in the cards when policymakers meet Oct. 28-29. The Fed last week cut a key interest rate to 1.5 percent from 2 percent, in concert with other central banks around the globe.

    Retail sales fell 1.2 percent in September, marking the third consecutive month of declines in consumer spending, according to the Commerce Department. It was the biggest drop in consumer spending since August 2005, when Hurricane Katrina struck the U.S. Consumer spending accounts for more than two-thirds of all U.S. economic activity.

    The retail sales report showed spending declines in September throughout the retail industry. Consumers cut their spending at car dealerships, restaurants and bars, and stores selling groceries, clothing, furniture, electronics and appliances, building materials and gardening equipment, and sporting goods, books and music. Internet sales also fell last month. However, sales increases were seen at gasoline stations and at health and personal care stores, according to USA Today.

    By late afternoon yesterday, the Dow fell more than 600 points. On Tuesday, the Dow declined 231 points after forecasts from DuPont Co., Sun Microsystems Inc. and Texas Instruments Inc. raised fears that companies' outlooks for the fourth quarter and beyond could signal a severe economic downturn, according to The Associated Press.

    While reduced strains in world credit markets have eased some investors' nervousness about the economy, market anxiety remains high as hundreds of companies this week release third-quarter results and in some cases fourth-quarter forecasts offering a glimpse of the rough conditions that may lay ahead.

    "Even if it weren't for the credit crisis we'd probably be looking toward a pretty tough recession anyway," said John Thornton, co-portfolio manager at Stephens Investment Management Group LLC in Houston, told the AP. "The third-quarter earnings are kind of uninspiring, but third quarter hasn't been the real concern of people. I think the concern is the depth and duration of the downturn and the effect it's going to have on earnings."

    On a positive note, credit markets showed more signs of improvement after virtually freezing up last week. Bank-to-bank lending rates fell sharply overnight, indicating that credit is becoming easier to obtain. The London Interbank Offered Rate, or Libor, on three-month loans in dollars fell to 3.54 percent from 3.83 percent, dropping for an eighth straight day.

    Light, sweet crude fell $4.38 to $67.80 a barrel on the New York Mercantile Exchange. On Tuesday, oil fell as a stronger dollar hurt demand for commodities and overshadowed worries about a planned OPEC output cutback.

    In other financial news Wednesday:

    -- Inflation continued to moderate. The producer price index fell 0.4 percent in September following a 0.9 percent plunge in August. It was the first back-to-back monthly declines in the PPI in nearly two years, the Labor Department said.

    -- The Federal Reserve Bank of New York said its index of manufacturing activity in New York state plunged in October to the lowest level since the regional bank started the report in mid-2001. Gauges of employment, new orders, shipments, unfilled orders and inventories all dropped, according to USA Today.

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