Blue-chip stocks closed higher as investors put their money into companies whose fortunes rise with a growing economy. But worries that the economy is expanding too rapidly held the overall market lower for much of the day.
The Dow Jones industrial average rose 36.52 to close at 10,596.26 after being off as much as 150 points earlier in the session.
Broader indicators closed lower. The Standard & Poor's 500 fell 7.58, to 1294.26, and the Nasdaq composite index fell 58.49, to 2412.03.
Concerns about inflation, which have increased the market's volatility over the past two weeks, were behind today's declines as well. Stock prices dropped after the National Association of Purchasing Management said the nation's industrial economy expanded for a fourth straight month in May. Stock traders are increasingly worried that rising inflation will prompt the Federal Reserve to raise interest rates.
But by midafternoon, investors began picking up cyclical stocks that thrive on a growing economy. Aluminum company Alcoa gained 4 7/8, to 59 7/8, the strongest of the Dow components. Georgia Pacific, up 8-7/16, to 94 7/8, led a number of pulp and paper companies higher.
Airline stocks got a lift from the latest industry fare increase, the third of 1999. AMR, the parent company of American Airlines, rose 2-3/16 to close at 67 1/4.
Analysts suggested that the afternoon rally may also have been fed by computer-generated trades. Ricky Harrington, technical analyst at Wachovia Securities in Charlotte, said index fund managers may have been responsible for some buying tied to the start of a new month.
Technology stocks were mostly lower, including Dow component IBM, down 4 at 112. Hewlett-Packard fell 4-3/16, to 90 1/8, after an analyst at Bank of America Securities downgraded its stock.
The bond market offered little support for stocks. After the release of the purchasing managers' report, the 30-year Treasury bond plunged, sending its yield up to 5.94 percent from late Friday's 5.83 percent. The yield is now at its highest level in more than a year, presenting an attractive alternative to stocks.
Declining issues outnumbered advancers 10 to 9 on the New York Stock Exchange, where volume totaled 698.6 million shares, compared with 657.8 million on Friday. Markets were closed Monday in observance of Memorial Day.
The NYSE composite index fell 0.98, to 621.28; the American Stock Exchange composite index fell 2.63, to 776.11; and the Russell 2000 index of smaller companies fell 1.22, to 437.46.