No Relief for Wall Street as Dow Plummets 42.82 : Stocks: A three-day skid has brought the index down 159 points. NASDAQ hits a new low for the year as analysts wonder when the downturn might end.

The stock market downshifted again Thursday, dropping for the third straight day on general economic malaise, tensions in the Middle East and the budget drama in Washington.

The Dow Jones industrial average sank 42.82 to close at 2,365.10, the lowest level since April 17, 1989. Over the last three sessions, the closely watched index has fallen nearly 159 points.

Volume on the Big Board jumped to 180.06 million shares, up from 167.89 million on Wednesday.

The over-the-counter market was down even more sharply than the Dow. The NASDAQ composite index hit a new low for the year, closing at 325.61, down 7.64 points, or 2.3%. The Standard & Poor’s 500-stock index lost 4.93 to 295.46, or 1.6%.

Oil prices were up, with light crude oil for November delivery spurting to a record close of $40.42 a barrel on the New York Mercantile Exchange.

“It’s the usual suspects: rising inflation, rising oil prices, dropping bond prices, paralysis in Washington, dropping dollar and the Fed powerless to do anything about it,” said Michael Metz, market strategist at Oppenheimer & Co. “I think there’s a real deterioration of confidence in either Washington’s or the Federal Reserve’s ability to deal with the problems that we have.”

The market started heading higher but then turned south after an announcement by Chemical Bank that it would increase reserves for loan losses and sharply cut its dividend. Corporate earnings in general in a variety of industries have been below expectations.

And Wall Street was further displeased by President Bush’s latest budget stance, in which Bush said he would accept higher taxes for the wealthiest Americans in exchange for a big cut in capital gains rates. But Bush said he doubted that Congress would pass such a budget.

On the over-the-counter market, stocks were being quoted lower but no one was buying them, said Tracy Wheeler, head of OTC trading for Seidler Amdec Securities in Los Angeles. “The public appears to be out of the market, and the institutions just don’t seem to want to buy,” he said.

The Dow broke below its recent intra-day trading low of 2,380 that some had hoped would provide a threshold for the market. The Dow traded as low as 2,344.31 on Thursday, which caused some traders and market watchers to identify a sense of resignation by sellers.

“I think there were probably some institutions throwing in the towel,” said Arnold Kaufman, editor of Standard & Poor’s Outlook stock newsletter. “I would suspect that margin calls are starting to kick in as we get to the lowest levels in 18 months.” In a margin call, investors who have borrowed part of the purchase price of a stock are required to put up more cash when the share price falls.

“The question is,” Metz said, “How many towels have to be thrown before we see an end to this? I think we’re very close to the end of the decline. How close? God knows.”

The market’s fall Thursday was given some relief from computerized program trading. When the Dow dropped 51 points in the early afternoon, the New York Stock Exchange’s “uptick rule” that restricts programs was triggered.

After eight years of a bull market, investors are not used to seeing bears loose on Wall Street and are not sure what to do, experts said.

“I think there’s a lot of disbelief that stocks can be this low, and yet they are this low,” said Chris Wagner, head of the options trading desk at Hambrecht & Quist in San Francisco. “I think people are getting worn down.”

“There’s disappointment, but I don’t know if we’ve seen panic yet,” Wagner said.

Larry Rice, manager of national OTC trading at Wedbush Morgan Securities in Los Angeles, called the current market erosion “a taste of the Chinese torture drip test.”

“It’s just drip, drip, drip. It drives you nuts,” Rice said. “Sometimes you’d rather have the flood come and get it over with.”

But no one was willing to predict the kind of market blood bath that other Octobers have brought.

“Sentiment is already so negative that the market isn’t going to be broadsided--unless something unforeseen occurs,” said Eugene E. Peroni Jr., technical analyst for the Janney Montgomery Scott investment firm in Philadelphia.

In foreign markets, stocks in Tokyo closed sharply lower with the 225-share Nikkei average dropping 909.48 points, or 3.9%, to 22,585.63. At midday today, the Nikkei was down 449.35 points.

The London-based Financial Times 100-share index ended 19.6 points down at 2,102.2, while in Frankfurt, the DAX index rose 21.27 points to close at 1,428.38.

Among other market highlights:

* Leading the Dow lower were IBM, off 2 1/2 to 101; McDonald’s, off 1 1/8 to 25 5/8; Alcoa, down 2 to 54 1/2; and USX, off 1 to 30 7/8.

* Bank stocks were crushed anew after Chemical Bank slashed its dividend. Chemical fell 1 3/4 to 13 1/4, Manufacturers Hanover lost 1 7/8 to 20, First Interstate dropped 1 1/4 to 18 1/8 and Chase fell 3/8 to 12. Other real estate-related stocks also fell, including Marriott, off 1 3/8 to 8 3/4, and Hilton, down 7/8 to 27.

* Not even oil stocks held their ground. Arco lost 2 3/8 to 127 1/2, Halliburton dropped 2 to 49 1/4, Mobil gave up 1 3/4 to 56 5/8 and Unocal fell 1 1/8 to 29 3/4.

* The NASDAQ index of Los Angeles-area OTC stocks plummeted 2.43 to 73.75, a loss of 3.2%--far worse than the 2.3% drop in the national OTC composite index. Leading Southland issues lower were insurer Argonaut, down 5 to 53; Advanced Logic, down 1 1/4 to 4 1/2; and Optical Radiation, off 1 7/8 to 23 1/2. Neutrogena plunged 1 3/4 to 11 after it said earnings for the recent quarter will fall below year-ago levels because of “considerable softness” in some product sales in September.

* Retail stocks were broadly lower as many firms posted disappointing September sales. Sears fell 1 to 22 3/8, Nordstrom lost 1 to 19, Mercantile Stores fell 1 1/4 to 24 1/4 and Pic N Save tumbled 1 1/4 to 7 3/8.

* Entertainment and media stocks plunged in the wake of the weak earnings report from CBS Wednesday. CBS lost 3 1/8 to 155, Live Entertainment gave up 1 5/8 to 11, News Corp. dropped 1 5/8 to 8 1/4, Cap Cities/ABC fell 23 1/2 to 427 1/8, Time Warner slumped 2 3/8 to 67 3/8 and Paramount lost 1 1/4 to 34 1/8.

* Many high-tech stocks were hit hard. Software Toolworks collapsed 2 3/4 to 2 3/8 after it said it will report a loss for the latest quarter. Elsewhere, Microsoft fell 1 1/2 to 58 and Nellcor plunged 2 1/2 to 8 7/8.

But some high-tech issues bucked the trend, including Apple, up 1 1/4 to 27 3/4, Ashton-Tate, up 7/8 to 7 1/4, and Tandem, which rose 1 1/8 to 10 3/4 after saying it expects a record fourth quarter.

Market Roundup, D6