NEW YORK -- U.S. stocks closed little changed yesterday as optimism about stronger-than-expected corporate profits in the fourth quarter was offset by concern that rising interest rates will draw money from stocks.
Gains in semiconductor, automobile, electric utility, aerospace and financial stocks were balanced by falling prices for oil, retail, telephone, tobacco and electrical equipment issues.
"There are three things holding stocks back," said Anthony Dwyer, chief market strategist at Josephthal Lyon & Ross. "Concern over higher short-term interest rates, the probability that we're nearing a peak in corporate profits, and [the probability] that investors will use higher short-term interest rates to take money from stocks to money-market funds and other investments."
The Dow Jones industrial average dipped 3.70, to 3,741.92, after soaring 44.75 points on Friday. Sears, Roebuck & Co., Exxon Corp. and Procter & Gamble Co. were the biggest losers.
The Standard & Poor's 500 index rose 0.03, up for a second day, and the Nasdaq combined composite index added 0.69, to 745.71, its second straight advance. Rising prices for Microsoft Corp., Electronic Arts Inc., Dell Computer Corp., Cisco Systems Inc. and Qualcomm Inc. helped lift the Nasdaq index.
Advancing common stocks on the New York Stock Exchange outnumbered declining issues 1,183 to 1,061.
Oil company shares retreated as West Texas oil for delivery in January dropped 14 cents a barrel, to $16.85, the lowest price since mid-September. Oil fell in reaction to declining gasoline prices, which have fallen 12.5 percent in three days amid concern that demand for reformulated gasoline will drop.
Exxon dropped 87.5 cents, to $59.625; Royal Dutch Petroleum Co. American depositary receipts, equal to one common share each, fell 75 cents, to $106.50; Phillips Petroleum Co. lost 87.5 cents, to $31.75; and Burlington Resources Inc. slid $1.25, to $34.
Technology shares gained amid expectations of growing demand for personal computers.
IBM closed unchanged at $71.375, after rising as much as $1 as SoundView Financial Group Inc. raised its investment opinion to short-term "buy" from "hold."
Dell Computer climbed $1.50, to $42.625; Compaq Computer Corp. added 62.5 cents, to $40.75; and Gateway 2000 Inc. increased $1.875, to $22.50. Semiconductor makers also gained, led by LSI Logic Corp., up $2.125, to $43, and Intel, up $1.25, to $64.125.
Stocks posted larger gains throughout most of the day before retreating amid computer-guided sell orders. Gains also were limited by concern that the Fed's six interest-rate increases this year are siphoning investors' money to risk-free investments DTC such as money-market funds and bank certificates of deposit, traders said.
More than $387 million moved out of stock funds in the week ended Wednesday, said AMG Data Services. That followed a report from Fidelity Investments, the nation's biggest mutual fund company, that a net $100 million was redeemed from stock funds in November.
Countering concern over rates was the optimism about corporate profits, spurred by Friday's report that unemployment fell to a four-year low, analysts said.
"People are talking about it being the best of all worlds," said Don Hays, director of investment strategy at Wheat First Securities Inc. in Richmond, Va. "If we've got a very good economic recovery with no inflation, it looks like the Fed will not be raising interest rates again" after having done so six times this year, he said.
Investor sentiment toward stocks also got a boost from stability in the dollar and in commodity prices, which suggest that interest rates won't rise much more, said Mr. Hays.
The dollar dipped 0.285, to 100.35 Japanese yen, yesterday after rising above 100 yen on Friday for the first time in seven weeks.