Concern about rate increases puts damper on Dow

NEW YORK — NEW YORK -- U.S. stocks, coming off a powerful two-day rally, closed mixed yesterday after a report showing brisk economic growth rekindled concern that the Federal Reserve might raise interest rates later this month.

Offsetting that concern was optimism that more companies will post better-than-expected quarterly profits, traders said. Sun Microsystems Inc. and Adaptec Inc. did just that after the market closed yesterday.


"I think most people still believe the Fed may not tighten, but the market's had a big move, so some people are re-evaluating where to go from here," said Richard Meyer, head of institutional equity trading at Ladenburg, Thalmann & Co.

The Dow Jones industrial average fell 1.68, to 3,930.66. It had gained 73.34 points in the past two days to close Monday at its highest level since Oct. 19. Losses in Aluminum Co. of America and Sears, Roebuck & Co. offset gains in Caterpillar Inc. and Boeing Co.


The Standard & Poor's 500 index rose 0.67, to 470.05. The index had soared 7.74 points in the past two days. The Nasdaq composite index rose 3.98, to 772.14, extending the past two days' 11.67-point advance.

The Fed said yesterday that the nation's factories, mines and utilities operated at 85.4 percent of capacity last month, the highest rate since 1979. The rise above 85 percent, the level that many economists say means faster inflation, caused some to think the Fed might raise interest rates when its policy-making panel meets on Jan. 31 and Feb. 1.

The report shook the confidence of recent days that the central bank wouldn't lift rates because the economy is showing signs of slowing.

Thirteen stocks rose on the New York Stock Exchange for every nine that declined. Trading on the Big Board topped 300 million shares for the sixth straight day, with about 333 million shares changing hands today.

The Russell 2000 index rose 1.20, to 252.92; the American Stock Exchange market value index gained 1.56, to 439.09; and the Wilshire 5,000 index added 14.53, to 4,648.40.

Optimism about earnings helped high-technology stocks yesterday.

Intel Corp., Sun Microsystems and Adaptec released earnings after the market closed. Intel posted fourth-quarter net income of 86 cents a share, after a charge of 70 cents a share to pay for replacing defective copies of its Pentium microprocessor. The charge was bigger than expected, but the earnings from operations matched the consensus estimate of $1.56 a share compiled by Institutional Brokers Estimate System.

Intel, the second most actively traded U.S. stock, closed down $1.125, at $67, after rallying as much as $1.25, to $69.375, earlier yesterday. Intel had risen 6.8 percent since the beginning of 1995.


Sun Microsystems' fiscal second-quarter earnings of 86 cents a share beat analysts' estimates of 67 cents; its stock closed up 37 1/2 cents at $36.25 yesterday and is expected to rise tomorrow, traders said.

Adaptec's fiscal third-quarter earnings of 52 cents a share also surpassed estimates of about 37 cents, according to Zacks Investment Research. The stock rose 6.25 cents, to $24.50.

Some chip stocks gained from concern the Japanese earthquake might curb production of some memory chips, possibly increasing prices if supply lags behind brisk demand, analysts said. The earthquake suspended work at a Texas Instruments Inc. plant near Kobe, Japan.

Texas Instruments Inc. stock, which initially rose as much as 37.5 cents, closed 87.5 cents lower, at $73.25. Shares of Micron Technology Inc. rose $1, to $46.375. The two companies are the main U.S. sellers of dynamic random access memories, or DRAMs.