Stocks turned in a mixed performance Monday after a report showed that the nation's manufacturing sector is expanding but facing even higher costs, triggering worries about inflation and rising interest rates.
The market made a brief advance in early trading, lifted by lower oil and a pair of multibillion-dollar acquisitions, but retraced its steps as investors mulled the latest industrial data from the Institute of Supply Management. Meanwhile, news that global computer chip sales grew 1.7 percent in August bolstered gains in technology stocks.
While the ISM's index was better than expected and signaled that manufacturing has so far withstood the effects of hurricanes Katrina and Rita, companies reported another steep rise in raw materials prices last month amid record energy costs. Price inflation is among the top reasons for the Federal Reserve to keep to its policy of raising interest rates.
The hurricanes are "not only creating shortages near term but also will ultimately create a kind of vortex of demand that will be concentrated in the fourth and first quarters," said Jack Ablin, chief investment officer at Harris Private Bank. "There's been concern that that will create inflation pressure for building materials.
"Any observer who thought there was light at the end of the Fed-tightening tunnel will be deeply disappointed," he added, suggesting the Fed will hike interest rates again when it meets in November.
The Dow Jones industrial average dropped 33.22, or 0.31 percent, to 10,535.48.
Broader stock indicators ended mixed. The Standard & Poor's 500-stock index was down 2.11, or 0.17 percent, at 1226.70, while the Nasdaq composite index gained 3.74, or 0.17 percent, to 2155.43.
NRG Energy rose $5.95, to $48.55, after agreeing to buy Texas Genco.
R.H. Donnelley fell $1.49, to $61.77, after announcing plans to merge with larger phone book publisher Dex. Dex fell 97 cents, to $26.82.
Aspen Insurance Holdings fell $4.14, to $25.41, after more than doubling its projected Katrina impact. Ace raised its loss projection and fell $1.49, to $25.41.
New York Stock Exchange composite index fell 6.75, to 7626.23.
American Stock Exchange index rose 1.87, to 1738.76.
Russell 2000 index of smaller-company stocks rose 2.75, to 670.55.
NYSE: 2.09 billion shares, down slightly from Friday. Advancers outnumbered decliners 5 to 4.
Nasdaq: 1.87 billion shares, up from 1.64 billion. Advancers outnumbered decliners 8 to 7.
Crude oil for November delivery: $65.47, down 77 cents.
Gold for current delivery: $466.10 a troy ounce, down from $469 on Friday.