U.S. stocks finished mixed as concern that the Federal Reserve may soon raise interest rates offset optimism about growth in the economy and in corporate profits.
"Everyone's talking about the Fed tightening" credit, said Barry Berman, head equity trader at Robert W. Baird.
The Dow Jones industrial average, helped by a rebound in
Goodyear Tire & Rubber Co., gained 3.64 points, to 3,755.21, approaching last Monday's record 3,764.43.
Broader market indexes were little changed, while 10 stocks declined for every seven that rose on the New York Stock Exchange.
The Standard & Poor's 500 Index fell 0.53, to 465.85, after rising 3.04 Friday. The Nasdaq Combined Composite Index, up for a fourth straight session, closed 0.92 higher at 760.15. It gained 3.7 points Friday. The American Stock Exchange Market Value Index slipped 1.12, to 464.08.
Trading was slower than usual as investors prepared to observe Christmas. About 256 million shares changed hands on the Big Board, down from an average of 295 million last week.
"We had a strong market on Friday, so I would expect the market to give some back," said Alfred Goldman, director of technical research at A. G. Edwards & Sons. The Dow industrials gained 25.43 Friday amid the quarterly expiration of stock index futures and options.
Traders said yesterday's lackluster performance doesn't rule out traditional end-of-year rally. "I still think we're going higher before the end of the year," said William Lord, vice president in equity trading at UBS Securities. "We're just not seeing it today because it would be like fighting the current after Friday."
Stocks were hurt by concern that the Federal Reserve may raise interest rates as economic activity picks up, traders said. The central bank's Open Market Committee is slated to meet today to set interest-rate policy for the next six weeks.
Fed officials probably will lean toward raising interest rates to curb inflation, the Wall Street Journal reported.
"One of the keys" for stocks "could be the FOMC meeting," said Richard Ciardullo, head trader at Eagle Asset Management, which oversees about $6 billion. "I think all eyes will be on that."
The yield on the benchmark 30-year bond rose to 6.3 percent yesterday, from 6.27 percent late Friday.
Fed officials probably need to see more evidence the economy is improving "before they do anything," said Mr. Berman of Robert W. Baird."Over the last month and a half, the economic numbers have been better than expected," Mr. Berman said.
The Commerce Department said Friday that housing starts in November climbed 3.9 percent to a seasonally adjusted rate of 1.432 million, the highest level in almost four years, defying economists' expectation of a 0.1 percent decline.
Meantime, analysts in recent weeks boosted their earnings estimates for the fourth quarter of calendar 1993, the Wall Street Journal reported.
"At some point, higher interest rates are going to cause problems for stocks, but that's not happening yet," Mr. Berman said. "As long as interest rates stay down, there's good momentum for the economy to recover and earnings to go up," he said.
Bank stocks were among the biggest gainers in the S&P; 500 amid expectations of strong fourth-quarter earnings, traders said. Analysts in the past month have increased 1993 earnings estimates for several banks, including Citicorp, Wells Fargo & Co., First Chicago Corp. and Chase Manhattan Corp., the Wall Street Journal reported.
Citicorp climbed $1, to $37.50; Wells Fargo jumped $3.625, to $128.75; First Chicago closed up 37.5 cents, at $43.125; and Chase Manhattan gained 25 cents, to $34.50.