Moreover, market players speculated that the rumored hedge-fund problems could have prompted the central bank once again to plan a rescue mission following last fall's bailout of Long Term Capital Management. The Fed would not comment on the rumour. But a spokesman at Tiger Management, the hedge fund alleged to be in distress, called the rumor "absurd" and "absolutely uncertainty into a market already on edge by weeks of speculation that an continued interest rate increase is just around the corner."

The Federal openmarket committee, the Federal reserve's policy-making body is to meet June 29 and 30 and is widely expected to raise short-term interest rates by 1/4 of a percentage point. The Dow Jones industrial average, which fell every day except Monday this week, tumbled 130.76 points, or 1.2 per cent, to 10,490.51. The blue chip index lost 2.86 percent for the week, its gain for the year falling to 14.26 per cent.

On the New York Stock Exchange, declines remained ahead of advances 1,728 to 1,227, while trading volume was relatively light at 693 million shares. The Nasdaq Composite gave a similar performance, falling 36.74 points, or 1.5 per cent, to 2,447.88, while the S&P 500 index lost 9.18 points to 1,293.64.

The Nasdaq shed 1.22 per cent on the week, for a gain on the year of 11.65 per cent. The S&P 500 index lost 2.57 percent this week, cutting its gain for the year to 5.24 per cent.

Courtney Smith, chief investment officer at Orbitex Group of Funds, said the market's misfortunes were largely due tointerest rate jitters and the expectations that a Fed hike was imminent. But Ned Collins, head of trading at Daiwa Securities said the market was settling into "a healthy consolidation phase".