Stocks closed mostly lower today as revived fears of rising interest rates distracted investors from the latest good news about corporate profits.
The Dow Jones industrial average fell 120.32 points to close at 10,349.93, having recovered from a loss of as much as 155 points.
Broader stock indicators contained their slide. The Standard & Poor's 500-stock index fell 8.02, to 1293.63, and the Nasdaq composite index fell 0.57, to 2815.95.
Stocks fell after bond yields rose early in the day. Analysts said bond prices, which move in the opposite direction from yields, were hurt by a European Central Bank official's suggestion that the European economy is solid, but in danger of succumbing to rising inflation.
That warning sounded familiar to U.S. investors, who fear the Federal Reserve will soon raise interest rates to cool the robust growth of the U.S. economy. Yields on bonds, which are highly sensitive to inflation, have reached their highest levels since October 1997, drawing some investors away from stocks in favor of the fixed returns available on bonds.
"Bonds are providing tough competition for returns on equities," said Robert Stovall, president of Stovall/Twenty-First Advisors in New York. "That's especially true in a nervous, insecure market."
This week, several regional Federal Reserve officials including Fed Chairman Alan Greenspan will be on the road, delivering speeches that are sure to be carefully scrutinized as investors seek guidance on the central bank's sentiments.
Corporate earnings have been the only real distraction from the interest rate watch, but a long list of profit reports today provided only a modest spark to trading.
AT&T rose 1-11/16, to 44-11/16, after reporting earnings that beat expectations by a penny even though revenue growth slowed.
The Dow's oil companies both fell, however, despite profit reports that beat analysts' expectations. Chevron fell 3 3/4, to 90, after reporting earnings of $1.07 a share, excluding one-time charges. Analysts surveyed by First Call/Thomson Financial had predicted $1.01 a share. Exxon fell 2 7/8, to 74. The company earned 61 cents a share, above estimates of 59 cents a share, but profit margins fell. Analysts also suggested that investors had hoped to see stronger profit growth given a rise in oil prices in recent months.
Financial stocks were mostly lower, following a major leap on Friday after Congress neared a deal that would give banks, brokerages and insurance companies greater leeway in merging and selling one another's services. J.P. Morgan fell 5-7/16, to 120-3/16, and American Express lost 5 1/4, to 143 3/8, the biggest decliners in the Dow.
American Express slid even after the company matched analysts' expectations for third-quarter profits.
The Nasdaq's relative strength came from the Internet sector. Digital Island, a provider of network services, rose 15 3/4 to 38 3/4, after agreeing to acquire privately held Sandpiper Networks for $621 million. Sandpiper provides management statistics for electronic-commerce Web sites.