NEW YORK -- U.S. stocks dropped yesterday amid a rise in long-term interest rates and losses in oil and telephone shares, some of the market's biggest winners in recent days.
Oil and telephone shares were depressed by a 4.3 percent plunge in Chevron Corp. and weaker-than-expected third-quarter earnings from Sweden's L. M. Ericsson, traders said.
Weakness in those stocks outweighed relief that the House of Representatives voted Wednesday night to pass the North American Free Trade Agreement by a bigger-than-expected margin of 234 to 200.
"NAFTA was yesterday's concern," said David McHugh, who manages about $5 billion for the Northern Investment Counselors unit of Northern Trust Co. "The biggest concern now is what's going on with the bond market."
The Dow Jones industrial average fell 19.01 to 3,685.34, led by Chevron, Caterpillar Inc., Boeing Co. and Philip Morris Cos. Weakness in those shares countered gains in Goodyear Tire & Rubber Co., International Business Machines Corp. and General Motors Corp. The average fell as much as 36.15 points at one point yesterday.
Among broader market indexes, the Standard & Poor's 500 Index fell 1.19 to 463.62, and the Nasdaq Combined Composite Index plunged 8.03 to 754.33. The American Stock Exchange Market Value Index lost 3 to 469.54.
Eleven common stocks fell for every six that gained on the New York Stock Exchange. Trading was active, with about 310 million shares changing hands on the Big Board. Trades tied to today's expiration of November stock options contributed to yesterday's market decline, traders said.
Stocks slumped amid concern that rising interest rates might tempt investors to take money out of the stock market and into fixed-rate investments, traders said. Higher rates also hurt stocks because they constrain growth.
Treasury bonds plunged for the fourth straight session as
mounting evidence of an accelerating recovery pushed yields to a three-month highs. The yield on the benchmark 30-year Treasury bond rose as high as 6.24 percent from 6.18 percent late Wednesday, on a bigger-than-expected drop in weekly unemployment claims and a positive report on manufacturing activity.
"With bonds trading down, people have to stop focusing on NAFTA and worry about the ultimate fear for the stock market: rising interest rates," said Thomas Gallagher, managing director in equity trading at Oppenheimer & Co.
L Oil and telecommunications stocks paced yesterday's decline.
"All the oils are getting hit," said Bob Ward, vice president in equity trading at UBS Securities. The S&P; group of six international oil companies fell 0.3 percent yesterday after rising 2.2 percent Wednesday.
Chevron, which jumped 3 points Wednesday, sank $4 to $89 yesterday after Pennzoil Co. sold about 8.16 million shares of Chevron common stock to lock in a $21-a-share gain on its original investment as well as a tax benefit.
The Chevron shares, which represent about 2.5 percent of the company's outstanding shares, were sold in a single block at noon EST, for a total of about $726 million, netting a gain of $171 million to Pennzoil. Before the actual sale, speculation about Pennzoil's plans drove Chevron stock lower.
Meantime, telecommunications shares, which rallied in recent weeks amid optimism about the industry's outlook, were battered by weaker-than-expected third-quarter earnings from Sweden's L. M. Ericsson and a warning that fourth-quarter operating income might not increase from a year ago. Ericsson's American depositary receipts plunged $7.875 to $42.625; each ADR represents one ordinary share.