Wall Street dropped Tuesday as investors waited to hear the Federal Reserve’s latest pronouncements about how the economy was faring and what role the central bank would play going forward.

Several downgrades also weighed on the markets.

Almost no one expects the Fed to lift interest rates from their current levels of nearly zero percent. But investors will scour a statement from the Fed to glean some insight into what the central bank thinks about inflation, the speed of a recovery and its purchases of more than $1 trillion in government bonds and mortgage-backed securities.

Many analysts expect the Fed’s Open Market Committee, which is meeting Tuesday and Wednesday, to offer a stay-the-course message.

“The surprise would be if there was a surprise,” said Bill Schultz, chief investment officer at McQueen Ball & Associates. “They’ll probably make some statement that they’re still cautious and vigilant and standing by to react. I would be very surprised if they changed their course.”

Nonetheless, cautious investors booked some profits from a recent surge in the stock markets and made defensive bets, speculating that a summertime rally that accompanied some better-than-expected corporate earnings might have run out of steam.

At the close, the Dow Jones industrial average was down 96.50 points, or 1.03 percent at 9,241.45, and the broader Standard & Poor’s 500-stock index was off 1.27 percent or 12.75 points at 994.35, slipping below 1,000 points. The Nasdaq fell 1.13 percent or 22.51 points at 1,969.73.

All three markets also closed lower on Monday, with the Dow losing 32.12 points.

Stock analysts underscored those concerns by downgrading companies like Yum! Brands, which owns Pizza Hut and Taco Bell, and the mobile provider Sprint Nextel, which posted a second-quarter loss as its subscriber base dwindled.

Financial stocks dipped the most, with big banks and regional financial chains both slipping. After surging last week on hopes for an economic recovery, shares of the beleaguered insurer American International Group and the commercial lender CIT Group tumbled on Tuesday, each falling by double digits.

A report on worker productivity highlighted some broader concerns about the private sector’s health as the economy bottoms out. Productivity surged in the second quarter as workers managed to produce only slightly less work in far fewer hours, meaning that businesses were becoming more efficient.

But analysts are concerned that the overall output of goods and services is slipping, and they point out that many companies are returning to profitability by slashing costs, not by pulling in new revenues.

Oil prices slipped below $70 a barrel, falling $1.15 to $69.45.

Bond prices rose after a solid showing at the first of three auctions for $75 billion in debt, this one for $37 billion in three-year notes.

The yield on the three-year note fell to 1.75 percent from 1.78 percent late Monday. The benchmark 10-year Treasury note fell to 3.72 percent from 3.78 percent.

Toronto — Research in Motion shares tumbled more than four-and-a-half per cent on Monday after a UBS analyst downgraded the Blackberry maker’s stock to “neutral” from “buy” on price valuation.

Shares ended the day $3.91 lower to $79.70 on the Toronto Stock Exchange, their lowest close since mid-July.

Phillip Huang wrote in a report that the company could face “potential headwinds in the back half of the calendar year,” driven by a potential partnership between Verizon Wireless and Apple’s iPhone.

AT&T is presently the exclusive authorized carrier of the iPhone in the United States, whereas RIM has agreements with several major U.S. carriers including both AT&T and Verizon.

“Although we don’t expect a Verizon iPhone launch this (year or) next year, we believe it could prove to be a sentiment headwind,” Huang wrote, while reducing his price target to $88 (U.S.) from $90.

Mr. Huang also noted a possibility that RIM shares could rise if investors react positively to the company’s current quarter, which ends later this month.

Mr Madoff told senior employees of his firm on Wednesday that “it’s all just one big lie” and that he was “finished”, according to a criminal complaint filed on Thursday night by the US Attorney’s office and the Federal Bureau of Investigations (FBI).

He allegedly went on to say that the business was “a giant Ponzi scheme” – a reference to Charles Ponzi, one of the greatest swindlers in US history – and estimated that the scheme had lost investors $50bn over many years – which would make the hedge fund one of the biggest frauds in history.

“There is no innocent explanation,” Mr Madoff said, according to the criminal complaint. He told the agents that it was all his fault, and that he “paid investors with money that wasn’t there”, according to the complaint.

He allegedly told his employees that he had, for years, been paying returns to certain investors out of the cash received from other investors.

Mr Madoff, 70, was charged with a single count of securities fraud and faces up to 20 years in prison and a fine of up to $5m if found guilty.

The criminal complaint was accompanied by a separate civil lawsuit filed by the US Securities and Exchange Commission (SEC), which accuses Mr Madoff of defrauding clients of his firm and seeks emergency relief for the victims.

“Our complaint alleges a stunning fraud – both in terms of scope and duration. We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors,” said Scott Friestad, the SEC’s deputy enforcer.

The complaint details that as of Jan 7, 2008, Madoff’s investment advisory business had assets of $17.1bn, serving up to 25 clients.

Although Mr Madoff is thought to have few direct British links, he did open a London office in 1983, with Madoff Securities International becoming one of the first American members of the London Stock Exchange.

Stephen Raven, chief executive of Madoff Securities International said: “We only became aware overnight of the news relating to our Chairman, Bernard Madoff. Our business in London is not in any way part of Bernard L Madoff Investment Securities LLC. His major shareholding in our firm is a personal investment. Our business activities are not involved in any way with the US asset management company with which the reported allegations appear to be concerned. We do not have any further information beyond what is already in the public domain.”

In 2000, his market-making business BMIS partnered with Goldman Sachs and Merrill Lynch to the form the new Primex Trading platform, one of the early rival electronic exchanges to the main bourses which eventually fell by the wayside following a partnership with NASDAQ.

BMIS is also credited with ending the old practice of quoting New York Stock Exchange-listed securities in eighths of a dollar in 1997, instead listing them in sixteenths.

Mr Madoff began BMIS with just $5,000 of savings from jobs lifeguarding at Rockaway Beach and installing sprinkler systems.

The firm grew to become a leading market maker, with brother Peter, nephew Charles, niece Shana, and sons Mark and Andrew all involved in the business at some stage in recent years.

His firm’s website claims that BMIS ranks among the top one per cent of US securities firms, and states that “clients know Bernard Madoff has a personal interest in maintaining… high ethical standards.”

Mr Madoff’s lawyer, Dan Horwitz, called his client “a person of integrity” and said he intends to fight the charge. “We will fight to get through this unfortunate set of events.” His client was released on a $10m bond secured by his New York apartment.