NEW YORK -- U.S. stocks dropped yesterday for the second straight day as yields on 30-year government bonds set a six-month high amid expectations the Federal Reserve may soon raise interest rates again.
The Dow Jones Industrial Average, which fell as much as 42.21 yesterday, closed down 35.18, at 3,887.46, ending the week with a loss of 7.04 points.
The yield on the 30-year Treasury bond climbed as high as 6.66 percent, from 6.54 percent Thursday, reaching its highest yield since July 27 at 6.63 percent.
"The fact that bonds weren't able to rally caused selling in the stock market," said Thomas Gallagher, head trader at Oppenheimer & Co.
Mr. Gallagher said some investors are concerned the weakness in bonds signals another rate increase is coming.
Stocks also were buffeted by yesterday's "double witching" expiration of February stock and stock-index options, which helped trigger computer-guided sell orders for stocks, said Philip Smyth, an analyst at Birinyi Associates Inc.
"It's not good to have an expiration day with the bond market falling apart again," he said.
The Standard & Poor's 500 Index fell 2.66, to 467.68, and the Nasdaq Combined Index declined 1.39, to 788.85.
The American Stock Exchange Market Value Index eased down 3.51, to 470.95.
Two common stocks fell for every one that rose on the New York Stock Exchange. Trading was moderate, with about 293 million shares changing hands on the Big Board, down from 339 million shares Thursday.
The U.S. financial markets will be closed Monday for Presidents Day.
The drop in U.S. stocks mirrored losses in major European stock markets, traders said. Britain's FT-SE 100 Index closed 42.70 lower, at 3,382.60, and France's CAC 40 shed 29.40, to 2,251.78.
Concern about rising rates was most pronounced in losses in the Dow Jones Utilities Average, which is viewed as an indicator of interest-rate movements, said Anthony Dwyer, chief investment strategist at Sherwood Securities.
The utilities average plunged 3.56, to 208.54, closing at its lowest level since April 29, 1992.
Ventritex Inc., Novell Inc., Telefonos de Mexico Class L American depositary receipts, Media Vision Technology Inc., and Intel Corp. were the most actively traded U.S. stocks.
Novell gained $1.125, to $23.875. The computer networking company said it was looking to sell "source licenses" to its Unix computer program to large computer makers, the Wall Street Journal reported.
Ventritex sank $10.25, to $26.75, amid concern about a visit by the Food and Drug Administration to the company's headquarters. Analysts at Furman Selz Inc. and Robertson, Stephens & Co. lowered their ratings of Ventritex, which makes devices designed to correct irregular heartbeat.
/# Media Vision Technology plunged
$7.625, to $35.25. The multimedia software maker reported fourth-quarter earnings of 53 cents a share, up from 18 cents last year, but 1 cent shy of the mean forecast of five analysts polled by Institutional Brokers Estimate System.
Optical Radiation Corp. soared $3.375, to $21.125. The manufacturer of vision-care products hired Donaldson, Lufkin & Jenrette to advise it on a possible sale of the company.
Education Alternatives Inc. eased $2.875, to $20.625. Based in Minneapolis, Education Alternatives operates nine public schools in Baltimore under the Tesseract system, which is also in use in Minnesota, Arizona, Utah and Florida.
The school-management company's shares are likely to fall into the single digits as more details come out about the company's accounting practices, according to American University accounting professor Howard Schilit, Business Week reported.
Gencor Industries Inc. dropped $1, to $11. The maker of industrial combustion systems posted a fourth-quarter loss of 37 cents a share, wider than the year-ago loss of 16 cents a share.
Viacom Inc.'s Class A shares fell $1.625, to $30.75. Viacom, fresh from winning the battle for Paramount Communications Inc., may face a revolt from shareholders of Blockbuster Entertainment Corp. as recent weakness in Viacom shares has trimmed the value of the Viacom-Blockbuster merger, the Wall Street Journal reported. Blockbuster shares rose 87.5 cents, to $24.50.