Stocks ended a lackluster session with mixed results today as investors stepped back from Friday's rally in technology shares. The Dow industrials struggled to a slight gain, but most stocks ended lower as the dollar sank to a new three-year low against the Japanese yen.
After shifting in a narrow range for much of the session, the Dow Jones industrial average rose 1.90 points to close at 11,030.33.
Broader indicators were lower. The Standard & Poor's 500-stock index fell 7.53, to 1344.13, and the Nasdaq composite index fell 42.29, to 2844.77.
Traders said investors, who sent the technology-dominated Nasdaq to a new closing record of 2887.06 on Friday, were ready to sell today in hopes of capturing profits.
"This is a time of constant rotation between sectors," said Robert Freedman, chief investment officer for the John Hancock Funds in Boston. "We move to a new high, then spend another week or so consolidating before it's another group's turn."
Internet stocks had the steepest declines today, as Yahoo fell 9 3/4, to 160 3/4, and eBay fell 10-1/16, to 147-15/16.
America Online fell 6-3/16, to 90 1/8. Traders attributed the drop to an article in Barron's magazine in which a short seller--an investor who bets that the price of a stock will fall--said AOL's stock price could be cut in half as a result of price competition.
In a short sale, a trader sells borrowed stocks on the expectation the price will fall before the stock has to be repurchased on the open market to complete the deal.
3Com Corp. rose 1 5/8, to 28 7/8, after saying it will spin off its Palm Computing unit, the maker of Palm electronic organizers.
Stocks were also pressured by the latest slip in the value of the dollar. Signs of economic growth in Japan have strengthened the yen, pushing it to more than three-year highs against the dollar.
Today, the dollar slipped to 106.65 yen in New York, from 108.72 late Friday, and earlier it flirted with 106 yen, dropping to its lowest level against the Japanese currency since mid-May 1996. A weaker dollar can hurt stocks in several ways. For one, it can entice foreign investors in U.S. stocks to put their money in investments in their own country.
A weaker dollar also makes imported goods more expensive. Some analysts believe higher prices of cars, electronics and other Japanese products coveted by U.S. consumers could increase the chances that the Federal Reserve will raise interest rates for a third time this year. The Fed has boosted rates twice this summer in an attempt to keep inflation from resurfacing.
"The Fed continues to have justification for higher rates," said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif. "If the Fed sticks to its historic role of being pre-emptive of inflationary trends, it has enough evidence to continue tightening."
Freedman said investors are still waiting for each new piece of economic data to suggest the Fed's likely course on interest rates.
"So far, we've gotten a mixed bag of economic information, so we're still trading from one number to the next," he said. The market's next crucial number: the consumer price index, due for release on Wednesday.
Among Dow components, J.P. Morgan was the biggest decliner, down 3 1/4 at 124-13/16.
Procter & Gamble fell 1-7/16, to 101-11/16, after announcing plans to form an Internet-based company to sell beauty products. Other consumer products companies, however, held up well. DuPont rose 2 3/4, to 68 1/2, and Eastman Kodak gained 2 7/8, to 75-15/16.
International Paper rose 2 1/2, to 53-13/16, continuing a recent wave of strength in paper stocks.