Stocks fell sharply for a third straight session as bond yields rose and investors, seeking clues to the future course of interest rates, braced for another round of economic data.
The Dow Jones industrial average fell 176.04, to 10,914.13. The Dow has fallen more than 100 points in each of the last three trading days.
Broader stock indicators also suffered steep declines as light trading volume exaggerated price moves. The Standard & Poor's 500-stock index fell 24.25, to 1324.02, and the Nasdaq composite index fell 46.21, to 2712.69.
Investors remained nervous about interest rates as they awaited reports this week on manufacturing activity and unemployment, which are expected to offer some evidence of how fast the U.S. economy is growing.
Analysts say signs of inflation could convince investors that the Federal Reserve will raise interest rates for a third time this year. Generally, higher rates are bad for stocks because they can cut into corporate profits and make other investment vehicles, including bonds, more attractive.
The market is following what has become a familiar pattern after interest-rate increases. The Fed raised rates in late June and last Tuesday, and after each move, stocks managed a short-term rally only to tumble as investors locked in profits and economists resumed their watch over inflation.
"The complacency that allowed the market to rally after the last increase has evaporated," said William Meehan, chief market analyst at Cantor Fitzgerald.
Meehan said Federal Reserve Chairman Alan Greenspan helped deflate the rally by saying in a speech Friday that the central bank should consider the effects of the bull market while setting monetary policy. Greenspan also deemed the market's long rise "inexplicable."
"People have good reason to be concerned and cautious," Meehan said. "If anyone had any doubts that Mr. Greenspan is still concerned about inflation, he put them to rest on Friday."
Stocks were further hampered today as bond prices dropped, sending the yield on the 30-year Treasury bond past 6 percent for the first time since Aug. 16. Yields above 6 percent draw investors away from stocks as they seek out guaranteed, stable returns.
"That yield is very negative for stocks," said Ted Hu, a vice president of Williams Capital Group in New York.
Financial services stocks, which typically suffer when interest rates are high, fell. American Express, down 4-15/16 at 139-11/16, and J.P. Morgan, down 3 at 130 3/4, were the weakest performers in the Dow.
Boeing rose 15/16, to 44 3/4, after company officials and leaders of its largest union neared agreement on a three-year contract.
Shares of Progressive Corp. plunged 16 1/4, to 102 3/4, after the insurer said it will miss earnings expectations in the third quarter because of price cuts and changes in the auto industry.
While most companies are expected to continue a streak of strong profits in the third quarter, analysts say expectations--and stock prices--are so high that any company that misses estimates is likely to see its stock price tumble.
Internet shares, which were mostly higher last week, fell as investors locked in profits. Amazon.com fell 9 1/4, to 119 1/4.
Shares of long-distance telephone companies were mostly lower after industry leader AT&T said it will cut prices for long-distance phone calls to 7 cents a minute. Fears of price wars have been holding down share prices of many phone companies. AT&T fell 1 1/2, to 46; MCI WorldCom fell 2-7/16, to 76-1/16; and Sprint dropped 2 3/8, to 44 3/4.