The continuing threat of higher interest rates demolished a rally on Wall Street, sending stocks lower even after a new report suggested the economy might not be overheating after all.
The Dow Jones industrial average closed 9.19 lower at 10,645.96 after rising as much as 136 points earlier in the session.
Broader indicators also gave up early gains and finished lower. The Standard & Poor's 500-stock index fell 0.67, to 1328.05, and the Nasdaq composite index fell 14.86, to 2623.63.
Stocks initially rebounded from last week's steep losses after the National Association of Purchasing Management said the U.S. manufacturing sector grew in July for the sixth consecutive month, but not as strongly as most analysts expected.
The market had anticipated that the report, which gauges manufacturing activity, would show continued economic expansion and raise the likelihood of the Federal Reserve hiking interest rates later this year. The report is the first reading on the U.S. economy's performance for July.
But there was little conviction behind today's early gains: Even as the Dow was up more than 100 points, the S&P and Nasdaq managed only modest gains. And by midafternoon, the Dow also began slipping, turning lower in the final hour of trading.
"It would appear that the worries about interest rates were not adequately assuaged by the NAPM report," said Richard A. Dickson, a technical analyst at Scott & Stringfellow Inc. in Richmond.
Bond prices followed a similar pattern, rebounding in morning trading before trailing off late in the day. The high yields on bonds have been contributing to a difficult environment for stocks, presenting an attractive and less volatile investment vehicle.
Financial stocks, battered last week as the threat of higher interest rates rattled Wall Street, followed the broader market, rising before turning mixed late in the day. Chase Manhattan rose 1, to 78-1/16, and American Express, a component of the Dow, fell 1-1/16, to 130-1/16.
Investors seeking bargains boosted DaimlerChrysler 2 5/8, to 74 3/4, on the New York Stock Exchange. The automaker's shares slid last week after the company reported flat operating earnings.
Sears rose 1-1/16, to 41-9/16, after reports that the company will cut 10 percent of the work force at its headquarters.
On a dismal day for most stocks, bullish analyst Abby Joseph Cohen provided a note of optimism. Cohen, chief investment strategist at Goldman Sachs Group Inc., told clients that she does not foresee a bear market and that share prices will continue to move higher along with strong corporate profits.
Declining issues outnumbered advancers by a 7 to 5 margin on the New York Stock Exchange, where volume totaled 649.6 million shares, compared with 763.8 million on Friday.
William Meehan, chief market analyst for Cantor Fitzgerald L.P., said the low volume suggests that many investors are staying out of the market for now and looking ahead to the Aug. 24 meeting of the Fed's Open Market Committee, which sets interest rates.