Dow closes down 2.80 in slow trading

NEW YORK — NEW YORK -- U.S. stocks surrendered most of Wednesday's gains yesterday amid concern that the bond market rally might have peaked and interest rates might be poised to rise.

The Dow Jones industrial average, which fell as much as 16.21 to 3,617.44 yesterday, closed down 2.80 at 3,630.85. Wednesday, the average gained 17.89. The Dow now sits close to its record close of 3,652.09, set Aug. 25.


"Most of the decline in interest rates is about over, for now," said Peter Da Puzzo, senior managing director at Cantor, Fitzgerald & Co.

Yesterday's decline was led by the stocks that advanced the most Wednesday, including oil and telephone shares. Trading was the slowest since the Friday before the Sept. 6 Labor Day holiday, as many investors were out of the office in observance of the Jewish New Year holiday, Rosh Hashana.


The Standard & Poor's 500 Index fell 2.16, to 459.44, after rising 1.7 Wednesday. The Nasdaq Combined Composite Index added to 739.80, retreating from the previous day's 6.9-point surge. The American Stock Exchange Market Value Index fell 0.06, to 453.68.

Concern that interest rates might rise hurt stocks and bonds, traders said. Treasury bond prices fell as much as three-eighths after a report in yesterday's New York Times quoted Federal Reserve officials saying lower rates could promote a "speculative bubble" in financial markets.

The yield on the 30-year bond rose 2 basis points to 6 percent, above the record low 5.84 percent set Sept. 8, as traders interpreted the Times report as a sign rates would not be cut.

The Fed's comments on rates, while discouraging to investors, didn't cause undue concern, traders said.

"I don't really see how anybody could expect them to push rates any lower than they are now," said Jim Benning, a trader at BT Brokerage. "They're already the lowest in 20-odd years."

"I take [the Times report] more as evidence the Fed will not continue to lower rates than as evidence they will raise them," said Peggy Farley, managing director at Amas Securities Inc., which manages about $200 million for institutional and individual investors.

"I don't think the Fed would be so irresponsible in the face of recent economic reports to raise rates. If there's substantial evidence of inflation that is longer than, say, a quarter, it will raise rates. But I don't think we're anywhere near that at this point."

Declining common stocks outnumbered advancers 4 to 3 on the New York Stock Exchange. About 230 million shares changed hands on the NYSE, below the daily average this week of 265.5 million shares. It was the slowest day since 196 million shares traded on Sept. 3.


Stocks didn't fall more, said traders, because interest rates were still hovering near record lows, leaving investors few alternatives to equities. "The break just creates another buying opportunity" for stocks, Cantor's Mr. Da Puzzo said.

Yesterday's decline in stocks followed a surge Wednesday that was fueled partly by demand tied to today's quarterly options expiration, known as triple witching. Prices often jump around in the days leading up to the options expiration.

Oil shares paced the decline yesterday, followed by telephone and drug stocks. Exxon Corp. fell 62.5 cents, to $65.50, after rising 62.5 cents Wednesday. Mobil Corp. shed $1.25, to $77.125, after gaining 87.5 cents Wednesday.

Gold stocks were among the biggest gainers, benefiting from a surge in gold prices. Gold rose $5.10 an ounce to $354.70 in New York.

Royal Dutch Petroleum, Home Depot Inc., Spectrum Information Technologies, Wang Laboratories, and Cisco Systems were the most actively traded stocks on the U.S. composite list.