NEW YORK -- U.S. stocks were mixed yesterday as the Federal Reserve's seventh interest-rate increase in the past year dimmed prospects for continued strong earnings growth in 1995.
Better-than-expected profits from Ford Motor Co. and CompUSA Inc. couldn't keep investors from concluding that the Fed's rate increases may slow the economy and prevent this year's earnings from rising as fast as they did in 1994.
The Fed's rate increase was widely expected. In its statement announcing the move, though, the central bank said nothing to indicate yesterday's increase would be the last for some time, as many people had hoped.
"Earnings expectations have been helping the market hold together, but more often than not, earnings positives are superseded by interest-rate negatives," said Christine Callies, market analyst at Brown Bros. Harriman & Co. "The Fed's statement was a little bit of a letdown."
Worries that the Fed may act again soon also hurt the U.S. bond market, which posted its biggest decline in more than two weeks.
The benchmark 30-year government bond's yield rose to 7.75 percent, up from 7.70 percent Tuesday, amid the concern over higher financing costs and the government's planned sale of $40 billion of new notes and bonds next week.
The Dow Jones industrial average pared early gains to close up 3.70, at 3,847.56, after climbing as much as 23.89 points shortly before the Fed took its action.
Losses in Minnesota Mining & Manufacturing Co., Procter & Gamble Co. and Eastman Kodak Co. were offset by gains in Aluminum Co. of America, International Business Machines Corp. and Boeing Co.
Stocks trimmed early gains after the Fed announced it was raising the federal funds rate on overnight bank loans and the discount rate on loans to member banks 50 basis points each. Higher rates hurt stocks by encouraging people to put their money in fixed-rate securities like bonds. They also raise the cost of borrowing, which hurts future corporate profits.
Among broader indexes, the Standard & Poor's 500 index slid 0.02, to 470.4, after climbing as much as 2.33, to 472.75, its highest since Oct. 31. Losses in telephone, health-care and electrical-equipment stocks outpaced advances in semiconductor, retail, paper and auto issues.
The Nasdaq composite index rose 3.11, to 758.31, even though it, too, fell from its intraday high of 762.33. Intel Corp., Cisco Systems Inc., MCI Communications Corp. and DSC Communications Corp. led the rise.