Stocks closed lower as lingering fears about rising interest rates prompted investors to collect profits from Friday's big rally.
The Dow Jones industrial average fell 44.32 to close at 11,034.13. The blue chips stayed in a narrow range throughout the session, bobbing briefly into positive territory before giving up ground.
Broader indicators ended with slim losses. The Standard & Poor's 500-stock index fell 6.79, to 1350.45, and the Nasdaq composite index fell 5.85, to 2837.26.
While merger activity stimulated trading in selected stocks, the overall market was quiet. Analysts said investors might be reluctant to drive prices much higher in light of Friday's massive gains.
The Dow soared 235.24 points Friday, and the Nasdaq gained 108.87, its largest single-day point gain ever, as a weaker-than-expected employment report raised hopes that the economy is not growing too rapidly.
But after the initial euphoria, many strategists dissected the report over the Labor Day weekend and returned to trading convinced that inflation may be escalating, said Hugh Johnson, chief investment officer at First Albany Corp.
John H. Shaughnessy, chief investment strategist at Advest Inc., said the stock market may remain locked in a narrow range, with some big price swings, until the question of whether the Federal Reserve will raise interest rates again is put to rest.
"Thereafter, we expect a very solid rally," he said, citing strong corporate earnings and stable Fed policy as cornerstones of market strength.
Optimism about corporate profits helped contain market losses as Wall Street investment banks raised their ratings or earnings estimates on some widely held shares. General Electric rose 3-13/32, to 119-13/16, after Salomon Smith Barney raised its rating on the stock. A Salomon analyst said he expects the share price to hit 135 within a year.
Motorola shot up 4 7/8, to 100, after an upgrade from Lehman Brothers.
The Dow's financial services companies fell amid the uneasiness over interest rates. J.P. Morgan, down 4 3/4 at 129-1/16, was the worst performer in the Dow. Its shares weakened amid a drop in bond prices.