NEW YORK -- U.S. stocks closed mixed yesterday as optimism about rising earnings and stable interest rates competed with a drop in bank stocks and Walt Disney Co.
The Standard & Poor's 500 index rose to a new high for a second day and the Nasdaq composite index broke a year-old record. The Dow Jones industrial average stumbled amid declines in J.P. Morgan & Co., Disney and AT&T; Corp.
"We are seeing what I would consider to be, under normal circumstances, extraordinary strength in bond and stock markets," especially at a time when the dollar has fallen to post-World War II lows against the German mark and Japanese yen, said Alfred Kugel, chief investment strategist at $25-billion Stein Roe & Farnham in Chicago.
"It may be that some of the Japanese and Western Europeans are reluctant to put money into our markets, but the fact is that money is coming into the [stock] market from Americans pulling money out of Asia and Latin America," Mr. Kugel said.
The Dow Jones industrial average, which surged 1.31 percent to a record 4,035.61 Friday, fell 10.38, to 4,025.23 even as yields on 30-year Treasury bonds dropped to 7.45 percent, from 7.46 percent Friday.
The S&P; 500 added 0.48, to 490.05, up from Friday's record of 489.57. Stronger drug, semiconductor, auto, food and gold companies overshadowed falling telephone, bank, oil, entertainment and paper issues.
The Nasdaq composite index reached a session high of 804.62, eclipsing a record that had stood since March 18, 1994, before closing at 802.31, up 0.09 and shy of the record close of 803.93. Intel Corp., Microsoft Corp., LDDS Communications Inc., Oracle Systems Corp. and Nextel Communications Inc. gained.
The Russell 2000 index of small stocks added 0.17, to 256.18.
Almost 11 common stocks dropped for every 10 that rose on the New York Stock Exchange, where volume declined to 275 million shares from Friday's 382.94 million.
Investors expressed optimism that corporate earnings will continue to grow this year and that the Federal Reserve Board may hold off on further interest rate increases, at least in the next couple of weeks.
Because growth is apparently slowing and inflation "isn't perking up," the Federal Reserve is probably close to finished raising rates, said Mr. Kugel of Stein Row & Farnham. "There's nothing to come out on our economy to disabuse people that we are making this 'soft landing.' "
Bankers Trust New York Corp. triggered a slide in bank stocks by saying after the market closed Friday that it will lose as much as $125 million in the first quarter because of losses in Latin American trading and lower derivatives sales.
Bankers Trust shares slumped $9.875, or 16 percent, to $51.375, the lowest in almost three years, and J.P. Morgan & Co. dropped $2.25, to $61.
First Interstate Bancorp. slid $1.50, to $78.25; Chase Manhattan Corp. declined 75 cents to $35; Citicorp dropped 25 cents, to $41.625; BankAmerica Corp. eased 12.5 cents, to $47.25; and First Chicago Corp. fell 62.5 cents, to $48.25.
Disney shares dropped $1.625, to $54.50. The head of the entertainment company's television division resigned Friday, fracturing a management team once known for its steadiness.
Losses in the Dow industrials were curbed by a rally in International Business Machines Corp., which rose $1, to $82.125, its highest since September 1992. Smith Barney Inc. lifted its 1995 earnings estimate for IBM to $7.75 a share from $7.25, mirroring a similar move by Salomon Bros. 10 days ago.
Gold stocks advanced as bullion prices rose.