Rising bond yields help depress stocks


NEW YORK -- U.S. stocks declined yesterday as computer-driven sell orders combined with concern about a rise in Treasury bond yields to send the market lower in the final hour of trading.

"Treasury bonds weakened through the day, and that triggered a late flurry of computer-driven sell orders," said John Blair, head trader at NatWest Securities Corp.

The Dow Jones industrial average closed 6.15 points lower at 3,677.80, after rising as high as 3,700.43 earlier in the session. The average's decline was led by shares of Sears, Roebuck and Co. and International Business Machines Corp.

The Standard & Poor's 500 Index fell 1.16, to 461.90, and the Nasdaq Combined Composite Index slumped 3.33, to 751.54. The American Stock Exchange Market Value Index dropped 2.78, to 460.69. Nine common stocks fell for every eight that rose on the New York Stock Exchange.

Trading was active, with about 273 million shares changing hands on the Big Board.

Stocks were up for most of the day, but then Treasury bond yields rose in the afternoon to 6.23 percent from a day's low of 6.18 percent. The sudden rise in rates surprised stock investors, Mr. Blair said.

"The increase in rates was especially surprising given the drop in commodity prices," he said.

For most of the day, stocks were higher amid optimism that declining oil prices would keep a lid on inflation and interest rates. Crude oil prices are down about 30 percent this year and sit at the lowest level in almost five years. West Texas Intermediate slumped $1.07 a barrel yesterday to $15.31.

The latest slump was triggered by the Organization of Petroleum Exporting Countries' inability last week to do anything to prop up prices. Analysts said crude prices might fall further now that Iraq, an OPEC member, has agreed to accept the United Nations' terms for monitoring its weapons capability. That means Iraq might soon begin exporting oil for the first time since the Persian Gulf war in 1991.

"The OPEC nations are positioning themselves so they don't lose market position if Iraq comes back," said Peter Cooke, vice president at Glenmede Trust Co., which manages about $7 billion. OPEC would be reluctant to reduce production until it's known whether Iraq will export, Mr. Cooke said.

Oil is a key indicator of inflation, so as long as prices stay down, inflation should stay down and so should interest rates, Mr. Cooke said.

"Inflation isn't a problem," said Paul Secord, who helps manage $600 million at Penn Mutual. Through October, inflation -- as measured by the Consumer Price Index -- is running at the lowest annual rate in seven years, of 2.8 percent, down from 3 percent last year.

"Low oil prices are good news for the stock market in general," said Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee. "It isn't good news for energy stocks."

Texaco Inc. fell 37.5 cents, to $63.50, and Mobil Corp. fell 25 cents, to $75. Marine Drilling Co. fell $1.375, to $5.25, and Halliburton Co. decreased $1, to $30.625.

Shares of airline, railroad and trucking companies rose on prospects that low oil prices will translate into lower fuel costs.

Shares of some retailing companies rallied yesterday on reports that sales exceeded expectations over the Thanksgiving weekend, said William Raftery, a market analyst at Smith Barney Shearson Inc. For example, Gap Inc. rose $1.875, to $40.625.

NationsBank Corp., YPF, Intel Corp., Telefonos de Mexico SA and Wal-Mart Stores Inc. were the five most actively traded issues on the U.S. Composite.

Procter & Gamble Co. rose $1.875, to $57.50.

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