Rising bond yields sent most stocks falling today, exacerbating nervousness in a market already rattled by the dollar's latest slump against the Japanese yen.
The Dow Jones industrial average fell 40.99 to close at 10,947.92. Early in the session, the Dow had dropped as much as 102 points.
Broader indicators also closed lower. The Standard & Poor's 500-stock index fell 8.79, to 1407.83. The Nasdaq composite index fell 26.44, to 3421.37.
Stocks fell along with bonds after the dollar proved immune to a Japanese effort to boost the U.S. currency.
In an effort to contain the yen's recent surge and maintain Japan's burgeoning economic recovery, the Bank of Japan bought dollars today. But the transaction provided no more than a modest lift. In late New York trading, a dollar bought 102.71 yen, up from 101.87 late Friday. Last Wednesday, the dollar bought 104.53 yen.
A weaker dollar makes imports in this country more expensive, potentially opening the door to rising inflation. It also makes U.S. investments less attractive to overseas investors.
"There's concern that money could be flowing out of our market if the yen strengthens at the expense of the dollar," said John Shaughnessy, chief investment strategist at Advest Inc. But Shaughnessy believes that the dollar's drop against the yen will soon be halted.
"The Japanese have a vested interest in keeping their currency weak," he said. "They want to stimulate exports and keep their recovery going."
Bond prices fell steeply, pushing the yield on the 30-year Treasury bond up to 6.30 percent, from 6.23 percent on Friday. The price fell $9.68 3/4 per $1,000 in face value. The rising yield hurt interest-rate-sensitive financial stocks the most; as of 5:45 p.m., J.P. Morgan was down 2-1/16 at 131 1/2 and American Express had fallen 4-13/16, to 147-13/16.
Technology shares held up a bit better than blue chips but eventually succumbed to some mild profit-taking, analysts said. Software maker Intuit fell 6-3/16, to 52-11/16. Online auctioneer eBay fell 7-9/16, to 169 5/8.
In recent weeks, technology stocks have dramatically outshone the broader market. The Nasdaq composite, which lists a large share of high-tech companies, has set 16 record-high closes since Oct. 29.
Several pockets of strength attracted buyers today. AT&T rose 2-11/16, to 60 1/8, after Salomon Smith Barney analyst Jack Grubman raised his rating on the stock to "buy" from "neutral."
Many retailers rose following a robust start to the holiday shopping season. Gap rose 2-7/16, to 41 3/8 and Dayton Hudson, which owns Target stores, gained 4 1/4, to 71.
The market was not significantly affected by a new report that showed that sales of existing homes fell to the lowest level in almost two years in October. The report, from the National Association of Realtors, suggested that the housing market, an important barometer of economic strength, is cooling down to a more sustainable level of activity.
In after-hours trading, Bloomberg News reported, Molex Inc. surged after Standard & Poor's said it is adding the company to the S&P 500. Molex rose 5, to 48, after falling 1-7/16, to 43, in regular trading. The Lisle, Ill.-based company, which makes connectors used in the automotive, telecommunications and electronics industries, will be added at the close of trading tomorrow, replacing Pacificorp, which was acquired by ScottishPower PLC.