NEW YORK -- U.S. stocks fell yesterday amid lingering concern that accelerating inflation could prompt the Federal Reserve to raise interest rates for the sixth time this year, putting further pressure on corporate profits.
"Inflation could reheat as a significant factor once again," said Eugene E. Peroni, market analyst at Janney Montgomery Scott Inc. in Philadelphia.
The Dow Jones industrial average fell 12.45 to 3,886.25, its fourth loss in five days. Losses in shares of DuPont Co., Union Carbide Corp. and Caterpillar Inc. paced the decline. Four computer-driven sell orders and one buy program shaved a net 7.4 points off the average, according to Birinyi Associates Inc. of Greenwich, Conn., a research and money management firm.
Stocks fell as the benchmark 30 1/4 -year bond dropped 3/8 and its yield rose to 7.56 percent from 7.53 percent Tuesday. Bonds slipped as the Commodity Research Bureau's index of 21 commodity futures, considered a leading indicator of inflation, jumped as much as 0.99 to 234.21.
Shares of companies sensitive to swings in the economy fell amid concern that the Fed would raise interest rates again this year in its continuing campaign to stamp out inflation.
Fed Governor Edward Kelley told Reuters yesterday that the central bank cannot afford to lower its guard against inflation despite signs that the U.S. economy may be cooling off. The Fed's aim, he said, was to apply the brakes to a point where the economy can grow steadily without hitting capacity bottlenecks that drive inflation higher.
The Morgan Stanley cyclical index, led in part by Caterpillar's 87.5-cents decline to $55.125, slumped 1.20 to 308.26.
Among broader market indexes, the Standard & Poor's 500 index fell 0.87 to 470.99, erasing Tuesday's 0.87 advance. Gains in oil, software, computer and semiconductor stocks were offset by losses in shares of telephone, electric utilities and retailing companies.
The Russell 2000 index of small capitalization stocks rose 1.01 to 256.81; the Wilshire 5000 index slipped 1.91 to 4667.29; and the AMEX market value index ended down 0.68 at 455.32.
Declining stocks outpaced advancing shares by about 11 to 10 on the New York Stock Exchange, where about 292 million shares traded hands.
Renewed speculation about a pickup in mergers and acquisitions helped shares of drug companies and health-care providers, said Tony Cecin, director of equity trading at Piper Jaffray Cos. Inc. Johnson & Johnson said Tuesday that it would buy Eastman Kodak Co.'s diagnostic unit for about $1 billion.
Yesterday, shares of U S Healthcare Inc. rose $2.375 to $43.50, PacifiCare Health Systems Inc. gained $2.875 to $68.625, and United Healthcare Corp. rose $1 to $51.75.
The S&P; semiconductor index rose 2.16 to 203.29, its highest in a week, as Intel gained $1.125 to $66.375 and Texas Instruments Inc. gained 87.5 cents to $75.50. Semiconductor stocks rallied after Hambrecht & Quist raised its opinion on Sierra Semiconductor Corp. to "buy" from "hold." Sierra's shares rallied $1.50 to $12.75.
Shares of oil companies gained in anticipation of rising demand for heating oil and natural gas as the United States heads into the winter months, said Paul Leibman, principal at Petrie Parkman & Co. in Denver.
Rising U.S. demand for heating oil, coupled with strong economic growth worldwide, will lift crude demand to 69.8 million barrels a day in the fourth quarter, the International Energy Agency said Tuesday. Such demand would outstrip supplies by roughly 1 million barrels a day. Nymex October crude rose 19 cents to $17.81 a barrel.
Shares of Texaco jumped $1.25 to $62.125, Anadarko Petroleum Corp. gained $1 to $48.125, Atlantic Richfield Co. rose $2.125 to $106.375, Kerr-McGee Corp. rallied $1.375 to $49.125.
Hanson PLC, Cisco Systems Inc., Intel, Compaq Computer Corp. and Nextel Communications Inc. were the most active stocks in U.S. composite trading.
Shares of Nextel rose $1 to $24.375. The provider of mobile radio communications services was rated "buy" yesterday at Lehman Brothers as analyst John Bauer began research coverage.
Jones Apparel Group Inc. closed down $2 at $23.125. Andrew Grossman resigned as president to become chief executive of Bernard Chaus Inc., prompting a Merrill Lynch & Co. analyst to cut his rating of Jones to "neutral."