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U.S. working group has not met to discuss markets
By Arshad Mohammed
(Adds details, quotes, background)

WASHINGTON, July 16 (Reuters) - The U.S. government has not convened its top-level working group on the financial markets to discuss the slide in U.S. stocks and does not try to manage the market's daily moves, the White House said on Tuesday.
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"They have not met with particular reference to stock market activity because we don't try to manage stock markets' daily movements," White House spokesman Ari Fleischer said of the President's Working Group on Financial Markets.

The group, which includes representatives from the U.S. Treasury, the Securities and Exchange Commission, the Federal Reserve Board and the Commodity Futures Trading Commission, was created after the 1987 stock market crash to promote close cooperation among key agencies at times of market volatility.

There were rumors in European markets on Tuesday that the group might have met to discuss the U.S. stocks slide.

Fleischer told Reuters there had been staff-level contacts among the group to discuss ways to improve corporate governance and protect employee pensions, something U.S. President George W. Bush had asked them to study in January, but that the heads of the agencies making up the group had not met recently.

The group typically meets when the markets are disorderly and there are concerns they may cease to function properly, but it can also meet in calmer times to address complex issues facing the financial markets.

The group issued a statement after the Sept. 11 attacks and it was particularly active during the Asian financial crisis.

The Bush administration's decision not to convene the group, unofficially nicknamed the Plunge Protection Committee, may reflect a view that the recent declines in the stock market to its lowest levels since 1997 are not of that order.

The stock market has fallen steadily over the last week because of a crisis of confidence in corporate America after accounting scandals at companies like Enron Corp (Other OTC:ENRNQ.PK - News), which has caused investors to doubt earnings reported by many companies.

However, the market has not suffered any dramatic one-day plunges like its 508-point loss in the "Black Monday" crash on Oct. 19, 1987 or its 554.26-point nosedive on Oct. 27, 1997, sparked by the Asian financial crisis.

The Dow Jones industrial average, which has fallen roughly 7 percent over the last week, was down about 165 points, or nearly 1.9 percent, at 8,474 at 4 p.m. EDT on Tuesday.

BUYERS 'RACING IN'

There was market talk in Europe on Tuesday -- dismissed by many players -- that the U.S. government may have tried to orchestrate Monday's stunning recovery on Wall Street by urging institutions to buy or by buying itself.

Stocks on Monday made their steepest plunge of the year and then rallied nearly 400 points for the Dow industrials to close down only 45.34 points at 8639.19.

A stock trader for a major investment bank on the Chicago Mercantile Exchange said the sharp rebound from deep declines on Monday was driven by institutional buying after stocks hit critical technical levels -- not by any market manipulation.

When the Dow Jones industrials breached its Sept. 21 lows and touched 8,244.87 with stock futures pointing to a 7,900 level, orders from investment banks Merrill Lynch (NYSE:MER - News), Goldman Sachs (NYSE:GS - News) and Lehman Bros (NYSE:LEH - News) and others flooded in, traders said.

"We were absolutely dead quiet going into the September bottom. It was kind of eerie on the floor. This was not suspicious, only savvy," one futures trader said.

Buyers knew that traders who had sold contracts "short" betting on further stock declines would have to start buying to cover their positions. Sure enough, the impact was explosive.

"It almost was like a gun that went off. When that Dow level was touched and held, buyers came racing in," he said.

The New York Fed called key market players in recent days to gauge what the market needed to hear from Federal Reserve Chairman Alan Greenspan in his testimony to the Senate Banking Committee on Tuesday to soothe investors, market sources said. One hedge fund adviser suggested this might have sparked the rumors of government intervention.

The New York Fed declined comment but said that as part of its role monitoring markets it speaks to participants daily on market conditions.

http://biz.yahoo.com/rc/020716/bush_markets_2.html


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