Blue-chip stocks fell for a third straight session as persistent concerns about interest rates sent bond prices tumbling. Bank and brokerage stocks, which stand to lose the most if rates go up, suffered sharp declines.
The Dow Jones industrial average fell 54.77 to close at 10,666.86 after being down 105 points earlier in the session. The blue-chip average lost 94.35 on Tuesday.
Broader indicators were mixed. The Standard & Poor's 500-stock index fell 2.82, to 1333.06, and the technology-dominated Nasdaq composite index rose 17.86, to 2598.12.
Stock and bond markets remained on edge as they awaited the Federal Reserve's meeting next week on interest rates. The Fed is widely expected to push rates higher in a bid to slow economic growth, but observers are divided on whether the Fed will raise rates more than once.
"The market continues to mark time," said Alan Ackerman, senior vice president at Fahnestock & Co. in New York. "People are very conflicted by fear of what the Fed will do."
Scott Bleier, chief investment strategist at Prime Charter Ltd., said that while many traders are beginning to accept the possibility of two rate increases, some fear the Fed will raise rates three times, wiping out the rate cuts the central bank initiated last fall to help protect the global economy from the Asian crisis.
"Three steps and a stumble," Bleier said. "There's a belief that the bull market could not survive three rate increases."
Rates rose in the bond market in response to that uncertainty. The yield on the 30-year Treasury bond rose to 6.14 percent, from late Tuesday's 6.06 percent. The price of the benchmark bond fell $10.63 per $1,000 invested.
The threat of higher rates hammered bank and brokerage stocks. Those business are especially vulnerable to higher rates, which can discourage borrowers and hurt lending volume. J.P. Morgan, down 4 3/8 at 130 5/8, was the biggest loser among Dow components.
A strong second-quarter earnings report from Goldman Sachs couldn't save the elite investment bank from the sector's weakness. Goldman's shares fell 3, to 65, mirroring the Tuesday performance of rival brokerage Lehman Brothers, which dropped after its own solid earnings report.