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Hoping to Spur Holiday Sales, Apple Cuts the Price of the iPhone

Apple unexpectedly cut the price of its iPhone on Wednesday, claiming that it was seeking to broaden the market for the popular but pricey phone for the Christmas season.

The company also introduced a new digital music player modeled after its iPhone and struck a wireless music distribution deal with the Starbucks coffee chain.

Apple, which rarely drops the prices on its products, cut the price of its eight-gigabyte iPhone by $200, to $399. Steve Jobs, the chief executive of the Cupertino, Calif., electronics maker, said in an interview after the announcement that the company would have been able to hit its publicly declared target of a million iPhones sold in the United States by the end of this month, even without a price cut.

Investors appeared to interpret the announcement negatively. Apple’s stock fell more than 5 percent, closing at $136.76, and most of the loss came during and after Jobs’ presentation Wednesday morning.

Stocks Fall as Fed Calls Credit Crisis Contained

Stocks fell Wednesday as investors were thrown by reports that showed the troubles in the housing market were deepening even as a Federal Reserve survey of regional conditions found little evidence of the turmoil having damaged other parts of the economy.

The sell-off briefly intensified after the release of the Fed’s Beige Book, which summarizes anecdotal reports about the economy from business executives across the country, led some investors to conclude that Fed policymakers would be less inclined to cut interest rates after their meeting on Sept. 18, given the relatively benign report.

When Fed officials next meet, they are widely expected to reduce the key lending rate from 5.25 percent to 5 percent or perhaps even less, but analysts are divided over how aggressively the Fed might pursue further rate cuts later this year.

The Standard & Poor’s 500-stock index closed down 1.2 percent, or 17.13 points, to 1,472.29; it had fallen by as much as 1.5 percent after the Beige Book was released in the early afternoon. The Dow Jones industrial average closed down 143.39 points, or 1.1 percent, to 13,305.47.

Treasury prices jumped, as investors sought safety in debt backed by the federal government. The yield on the 10-year Treasury note, which moves in the opposite direction from the price, fell to 4.47 percent, from 4.55 percent on Tuesday, hitting its lowest level since early December.

Pending home sales dropped by nearly 21 percent in the West, which has been hit hard by a spike in interest rates on jumbo mortgages — those for amounts higher than $417,000.

“The fact is that housing troubles are still building,” said Marc D. Stern, chief investment officer at Bessemer Trust, an investment firm in New York. “To say that we have bottomed is very much premature. The effect on economic activity will grow in the second half of the year and into 2008.”