the market was rattled by new economic numbers, which are expected to steer the Federal Reserve's views on interest rates.
The Dow Jones industrial average ended up 36.52 points, or 0.35 percent, at 10,596.26 after bargain hunters pulled the market out of a loss of more than 150
points.
In the broader market, declining issues led advances 1,558 to 1,404 on active volume of 681 million shares on the New York Stock Exchange.
But the technology-laced Nasdaq Composite index still held a hefty loss of 58.49 points, or 2.37 percent, at 2,412.03.
The market slumped after the National Association of Purchasing Management reported its index of manufacturing activity rose to 55.2 from 52.8 in April.
Analysts had expected a reading of 53.4.
''These are not good numbers,'' said Hugh Johnson, chief investment officer at First Albany Corp. ''This raises the chance that the Fed will raise short-term
interest rates. Simply stated, this is not good news.''
Investors were particularly worried about the rise in the NAPM's manufacturing prices index, which moved up to 52.2 in May from April's 49.9.
''The likelihood of inflationary pressures is increasing,'' said Barry Hyman, market strategist at Ehrenkrantz, King. ''The likelihood that the Fed is going to do
something is increasing. One more number in the employment report Friday and the Fed will probably react.''
The week culminates with Friday's important report on May nonfarm payrolls.
''With the employment report due Friday, it's not the best of news that the NAPM came in stronger than expected,'' said Pat O'Hare, a market strategist at
Briefing.com.
''And the price index component actually rose, which again is igniting inflationary concerns and leading the market to believe the Fed is going to be tightening on a
near-term basis,'' O'Hare said.
Meanwhile, Federal Reserve Vice Chairwoman Alice Rivlin said there was no clear indication yet of rising inflationary pressures in the booming U.S. economy,
but added the central bank would watch incoming data closely for any signs of it.
''We will continue to watch very closely all the signs that we might be getting inflationary pressures, but as you know, we haven't had clear indications yet that
that is true,'' she told a monetary policy conference after delivering a speech in Montreal.
''The prices-paid component was one more reason they are hitting the bonds,'' said James Volk, co-director of institutional trading at D.A. Davidson, referring to
the NAPM data.
The inflation-sensitive U.S. 30-year Treasury bond was off 1-8/32, and the yield, which moves in the opposite direction of its price, jumped to 5.93 percent from
5.83 percent Friday. U.S. financial markets were closed Monday for Memorial Day.
Analysts said there was at least one sign that inflation fears may be overdone -- the price of gold is at its lowest level in two decades.
Gold fell to a new 20-year low of $265 a troy ounce in overseas trading on reports that Australian producers had sold the precious metal.
''If there is really any threat of inflation, the price of gold would not be breaking down,'' said Peter Cardillo, director of research at Westfalia Investments.
The online sector lost more ground with the American Stock Exchange's Internet index down 15.09 points, or 5.07 percent, at 282.48.
Amazon.com Inc., the high-flying Internet bookseller, was off 12-15/16 at 105-13/16. Over the weekend, Barron's financial weekly ran a front-page story
headlined ''Amazon.bomb.''
''The idea that Amazon CEO Jeff Bezos has pioneered a new business paradigm is silly,'' the Barron's article said. ''He's just another middleman, and the stock
market is beginning to catch on to that fact.''
Elsewhere in the Internet sector, Yahoo! Inc. (YHOO.O) was down 9-13/16 at 138-3/16, America Online fell 6-1/4 to 113-1/8 and DoubleClick Inc.
(Nasdaq:DCLK - news) was off 5-1/2 at 91-15/16.
E+Trade sank 5-3/16 to 39-5/16 after the online broker said it would buy Telebanc Financial Corp. (Nasdaq:TBFC - news) for $1.8 billion. Telebanc shot up 8
to 74-1/2.
Merrill Lynch fell 9 to 75. The nation's largest brokerage house said it will offer online trading to all of its clients.
Analysts said the strategy posed a short-term revenue loss for Merrill Lynch, although they said they expected the firm to retain its prominence.
The weakness in stocks came despite some potentially good news out of Belgrade.
A top Yugoslav general said Tuesday that a political solution to the Kosovo conflict was in sight, but as diplomatic efforts gathered pace, he predicted tough
negotiations on key issues.
The Standard & Poor's composite index of 500 stocks fell 7.58 points to 1,294.26. The American Stock Exchange index was off 2.63 to 776.11.
The NYSE Composite index of all listed common stocks slipped 0.98 to 621.28. The average share was down 7 cents.
The Wilshire Associates Equity Index -- the market value of NYSE, American and Nasdaq issues -- was 11,902.547, down 74.202 or 0.62 percent. |
