Stocks got only a short-lived boost from China's US$586 billion plan

Wall Street caved in to its economic anxieties and closed lower yesterday, giving up an early rally over a stimulus package in China and refocusing on the acute pullback in spending that is pummelling US companies.

Stocks got only a short-lived boost from China's US$586 billion plan to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co and Caterpillar Inc.

But Wall Street's optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc and government takeover of the troubled insurance giant American International Group. Market participants realised that while China's stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.

There was little news yesterday to placate investors concerned about the health of corporate America. AIG got more money from the US government, but the nation's struggling automakers have yet to hear whether they, too, will get federal aid. And electronics retailer Circuit City Stores Inc filed for bankruptcy protection.

With few signs of recovery in the economy, investors aren't confident enough to make big bets on stocks, although they look cheap; the major indexes are down about 40 per cent from their October 2007 peaks.