NEW YORK -- U.S. stocks closed mixed yesterday amid expectations the Federal Reserve's policy-making panel will vote to raise interest rates today.
"Traders are pretty much assuming the Fed will raise rates half a point, and they hope that's the end of it," said Len Hefter, fTC managing director of Nasdaq trading at Jefferies & Co. in Dallas.
Food shares were among the biggest gainers for a second day amid speculation of mergers in the industry, traders said.
The Dow Jones industrial average fell 8.42, to 3,760.29, after rising as much as 12.62 points earlier. Declines in Aluminum Co. of America, International Paper Co. and Sears, Roebuck & Co. offset gains in Caterpillar Inc., Merck & Co., and J. P. Morgan & Co.
The Standard & Poor's 500 Index slipped 0.72, to 461.23, after gaining as much as 1.39 points. The Nasdaq composite index closed up 1.28, at 732.89.
Stock prices were mixed as analysts debated the extent and implications of a rate increase. On the one hand, some investors are optimistic that a rate boost would help stamp out future inflation. On the other, they're concerned that interest rates might be boosted again before the year is out. The Fed has raised rates four times so far this year, the last time on May 17.
"If you can snuff out inflation at these levels and maintain growth, that's a positive," said Fred B. Taylor, chief investment officer of U.S. Trust Corp., which manages about $32 billion.
More stocks fell than rose on both the New York Stock Exchange and the Nasdaq Stock Market over concern that any initial rally in stocks would quickly fade, traders said.
"The issue is less by how much the Fed tightens this month and more when the period of rapid Fed tightening will come to an end," said Jeffrey Applegate, chief investment strategist at CS First Boston Corp.
About 225 million shares changed hands on the NYSE, the fewest since last Monday, when 218 million traded.
The Federal Open Market Committee will meet today to set monetary policy for the next six weeks. Many analysts expect the panel to vote for a quarter- to half-percentage-point increase in federal funds, the rate charged on overnight loans between banks, currently at 4.25 percent. Some also expect an increase in the discount rate at which member banks borrow from the Fed, now at 3.5 percent.
Higher interest rates threaten to slow the economic recovery and curb growth in corporate profits; they also make fixed-rate investments relatively more attractive than stocks.
Food stocks rose yesterday for a second day amid speculation of more takeovers following Sandoz AG's merger agreement with Gerber Products Co. in May. Quaker Oats Co. added $1.125, to $76, after rising $1.375 on Friday. CPC International Inc. leapt $2, to $53.875, and Hershey Foods Corp. rose $1.25, to $46.
Megafoods Stores Inc. sank $2.625, to $1.375, after the operator of discount supermarkets said it probably will file for Chapter 11 bankruptcy protection this week.
Knogo Corp. soared $2.875, to $18.75, after Sensormatic Electronics Corp. agreed to acquire the electronic surveillance systems maker's business interests outside the United States, Canada and Puerto Rico in a stock swap valued at $100 million.
Lotus Development Corp., which soared as much as 48 percent since July 28, jumped $2.50, to $44.50, after Timothy McCollum, an analyst at Dean Witter Reynolds Inc., repeated a "buy" on the stock, saying a soon-to-be-released version of Lotus' Notes communication software will boost growth.