Stocks gave up an early advance and finished lower as investors were distracted once again by rising bond yields and lost some of their enthusiasm over America Online's deal to buy Time Warner. Internet companies' stocks led the Nasdaq composite index in a steep decline.
The Dow Jones industrial average fell 61.12, to 11,511.08, dipping below the new closing high set Monday. Earlier in today's session, the Dow rose as much as 90 points.
The Nasdaq fell 128.48, to 3921.19. The technology-dominated index has swung more than 100 points in five of seven sessions so far this year, a sign of extraordinary volatility after a sprint to record highs at the close of 1999.
The Standard & Poor's 500 index fell 19.04, to 1438.56.
Stocks fell as the yield on the 30-year Treasury bond rose to 6.67 percent, from 6.58 percent late Monday. The price fell fell $10.93 3/4 per $1,000.
The weakness in the bond market was spurred by growing concerns that the robust growth of the U.S. economy will force the Federal Reserve to raise interest rates at its next meeting on Feb. 1 and 2.
The Fed raised rates three times in 1999 in a bid to keep inflation from escalating. Continued signs of economic growth have convinced many economists that an increase in February is almost guaranteed.
In recent sessions, the bond market has been much more sensitive than stocks to the possibility of further rate increases. Last week, bond and stock prices dropped jointly amid the interest-rate concerns before stock investors resumed buying on the promise of strong corporate profits and a solid economy.
Today, however, bond yields were nearing the highest levels since September 1997, drawing some investors away from stocks.
Rising bond yields can make it difficult for stocks to advance, in part because they can present an appealing alternative to investors looking for stable returns.
Internet companies, which buoyed the market Monday in response to America Online's deal to buy Time Warner, mostly fell today as investors collected profits.
AOL fell 9 1/8, to 63 1/2, as of 5:45 p.m. EST. Analysts said investors were struggling with the notion that AOL, a highflying Internet leader that has commanded premium stock prices, will now behave more like a traditional media company.
Yahoo fell 38-11/16, to 397 3/8, in advance of its late-afternoon earnings announcement. The Internet service provider was among the market's strongest performers in 1999, and traders said the company would have to turn in an especially strong profit report to spark further gains.
After the 4 p.m. close of Wall Street's regular session, Yahoo said it earned 19 cents per share, while analysts had predicted 15 cents per share. In extended-hours trading, shares fell to 382 1/2, according to Instinet.
Nervousness about corporate earnings spread beyond the technology sector. Bank One, citing weakness in its credit-card business, fell 1/4, to 30, after saying it expects earnings for 2000 to fall significantly short of Wall Street expectations.
But the broader market showed signs of strength. Intel rose 3-15/16, to 89-11/16, after Credit Suisse First Boston raised its rating on the stock.