The Dow index of 30 blue chip stocks tumbled 195.93 points, or 2.15 per cent, to close at 8,932.98, amid talk on Wall Street of a correction. Boeing was the Dow's biggest loser, after the firm announced a 45.7 per cent fall in dividends for the second quarter over the same period a year earlier.Trading was heavy with 736 million shares changing hands, losers outnumbering gainers 2,361 to 633 and 502 unchanged.

On the bond market, the average yield on the benchmark 30-year treasury bond dropped to 5.655 per cent from 5.678 per cent on Wednesday after the US labor department announced a fall of 22,000 in unemployment insurance claims last week compared to a forecasted drop of 9,000.

Share prices were under pressure from the outset after weakness in overnight markets, follow-through selling and negative sentimentsurrounding a set of generally disappointing earnings.

Larry Rice, analyst at Josephthal, Lyons, Ross, said the sell-off was mostly a technical pull-back from an overbought position, while some disappointing earnings reinforced the negative tone.

"This pull-back is much needed," he said. "Unfortunately, there's been such destruction of the secondaries that this could be more long-lasting."

"You could see a rebound in the big cap names, where momentum has been for months. Everyday, you see some people throw in the towel and buy such stocks as Dell and Microsoft," he said. Disappointing earnings from Dow component Boeing triggered a lot of the early profit-taking and by the close, its 6-3/4 loss to 41-3/16 accounted for 27.81 points of the Dow's total loss.

Mace Blicksilver, analyst at Credit Lyonnais Securities, said it was unclear whether the downward trend of this week would continue. He noted that another 500-point decline in the Dow would bring about a 10 per cent "correction," which analysts viewas a normal occurrence on Wall Street."We don't know yet if it's business as usual, and nothing to be concerned about," he said. "We'll know in the next day or two if buyers come back." Richard Cripps of Legg Mason said he would be "surprised if (the correction) went beyond 10 per cent."

"The average market has been down for the last two weeks, paying the price for former exuberance," said Frank Gretz, market analyst at Shields and Co. "The big names are usually the last to go down and this is what we are witnessing at the moment ."

Gretz also said flows into stocks have backed off, a trend he sees continuing. "I expect the share prices to stay at the trading range until the end of the summer, with the low of 8,500" in the Dow.

In Hong Kong, share prices slumped 2.9 per cent for the second successive day following a three-day losing streak on Wall Street and a weakening Japanese yen.

Japanese share prices also tumbled as the yen slipped against the dollar after US ratings agency Moody's InvestorsService warned it might downgrade Japan's credit status, brokers said.

HK stocks to stay volatile

Hong Kong share prices are expected to stay volatile in the days ahead amid an absence of positive leads, after losing 4.3 per cent during the week to Friday, dealers said. "Basically there is a lack of positive news," said Eugune Law, research directorat Lippo Securities.

He cited interim company results starting to roll in amid uncertainty over the dIrection of Wall Street and worries over Japan, with the markets watching how next prime minister Keizo Obuchi tackles the recession-hit economy.

The Hang Seng Index lost 371.47 points over the week to close at 8,257.46 on Friday, after losing five percent in the previous week. Turnover amounted to HK$ 4.662 billion (US$ 602 million), against the previous week's 4.891 billion dollars. Dealers said the uncertainty about the economic policies of the new leadership in Japan and corrections on Wall Street on poor earnings were among the factorsdetermining the direction of the local market.

Ben Kwong, research director at Dharmala Securities, said: "We need a more stable Wall Street to quell fears in the local market." He said the local market was resigned to a degree of pessimism in its outlook because of the economic downturn.

"The uncertainty about the economic policies of the new leadership in Japan and corrections on Wall Street on poor earnings are among the factors that may pull the trigger," said Indosuez WI Carr technical analyst Ted Chan.