NEW YORK -- U.S. stocks recouped some of Monday's losses as the government bond market rallied for the first time in seven sessions and Britain lowered a key interest rate.
Low rates prompt people to move money out of fixed-rate investments and into the stock market in hopes of finding higher returns. They also speed the economic recovery. The rate cut in Britain was perceived as good for the United States because Britain is an important export market for U.S. companies, traders said.
"The stock market was due for a rally, and the bond market was the catalyst," said Barry Berman, head trader at Robert W. Baird.
The Dow Jones industrial average climbed 3.92, to 3,674.17, yesterday, after tumbling 23.76 points Monday.
The Standard & Poor's 500 Index, which has fallen for four sessions, rose 1.9, to 461.03. Monday, the S&P; 500 shed 3.47 points. The Nasdaq Combined Composite Index snapped a six-session slump, rising 8.69, to 746.82. The index plunged 13.43 points on Monday.
The stock market's rally wasn't as strong as the gains in all three major market measures would suggest, traders said. Nine stocks rose for every seven that fell on the New York Stock Exchange, and the Dow Jones transportation average tumbled 17.95, to 1,693.31, amid a slump in airline stocks.
AMR Corp., parent of American Airlines, sank $3.50, to $65.125. Analysts Thomas Longman of Bear, Stearns & Co. and Candace Browning of Merrill Lynch & Co. cut their ratings of the stock.
Ms. Browning said the five-day strike by American's flight attendants would cost the airline an estimated $80 million. AMR and the flight attendants' union agreed Monday to submit their contract dispute to arbitration.
UAL Corp., which owns United Airlines, fell $2.50, to $136.50, and Delta Air Lines Inc. closed $1.50 lower, at $57.50.
Retailers were another weak spot. Shares of the nation's biggest retailers dropped after Johnson Redbook Service said sales through the third week of November were expected to increase 0.9 percent from a month ago. That was below economists' expectations of a 1.5 percent increase.
Dayton-Hudson Corp. fell $1.75, to $71.375, May Department Stores Inc. dipped 12.5 cents, to $41.875, and Sears, Roebuck and Co. fell 37.5 cents, to $53.875. Wal-Mart Stores Inc. fell 50 cents, to $29.125.
The weaker-than-expected retail sales, along with a slump in oil prices, helped trigger a decline in long-term interest rates. U.S. Treasury bond prices broke a six-day losing streak as people perceived the drop in oil prices as a sign that inflation was in check.
Crude oil for January fell 44 cents, to $16.67 a barrel, amid speculation that Iraq was closer to having United Nations sanctions on oil exports lifted.
That speculation helped drive the yield on the benchmark 30-year Treasury bond to as low as 6.29 percent, down 9 basis points from late Monday. The yield is still more than half a percentage point above the Oct. 15 record low of 5.77 percent, as evidence mounts that the economy is strengthening.
"Until the [U.S.] bond market really starts to turn up substantially, I think the stock market is vulnerable," said Richard Meyer, head of institutional equities trading at Ladenburg, Thalmann & Co.
The overnight decline in bond yields did fuel rallies in brokerages, electric utilities, and international oil shares, which tend to move inversely to interest rates. Those groups were among Monday's biggest decliners.
The Dow Jones utilities average gained 1.91, to 225.88.
Stock market trading was slower than in recent sessions, with about 261 million shares changing hands on the Big Board.
U.S. stocks also got a boost from optimism arising from Britain's reduction of a key lending rate yesterday morning, traders said.
The Bank of England cut the base lending rate, which is the equivalent of the U.S. discount rate, to 5.5 percent from 6 percent. The new British rate is the lowest since June 1972.