NEW YORK -- U.S. stocks closed mixed yesterday as concern spread that the Federal Reserve might not cut interest rates again soon, and many technology companies advanced.
Banks and telephone companies, some of the stocks most sensitive to rising interest rates, declined as bond yields rose to their highest levels since early May.
The increase in rates "will definitely have an impact on stocks if it keeps going," said David McHugh, head of the personal investment management group at Northern Trust Co., which manages $10.5 billion.
Bond prices sank and yields rose after Federal Reserve Board Vice Chairman Alan Blinder questioned whether the Fed needs to cut rates more to stimulate the economy.
Spurred by the monthly expiration of stock and index options, the Dow Jones industrial average rallied in the final minutes, closing unchanged at 4,641.55 after falling as much as 29.59. The average, down 67.27 during the week, last closed unchanged on Jan. 18, 1994. Gains in McDonald's Corp. and Coca-Cola Co. offset losses in International Paper Co. and Sears, Roebuck & Co.
The Standard & Poor's 500 index rose 0.08, to 553.62, after falling as much as 2.63. Soft-drink, entertainment, communication equipment and drug shares rallied.
The Nasdaq composite index was up 1.20, at 961.77, after reaching a record high of 1,005.89 on Monday. The Nasdaq was boosted by a $6.125-point surge in Qualcomm Inc., to $41.75, after Sprint Telecommunications Venture decided to use technology backed by Qualcomm in a nationwide wireless telephone network. Cisco Systems Inc., DSC Communications Corp. and Adaptec Inc. also posted large gains.
The Russell 2000 index of small-company stocks rose 1.11 to 290.53 while the Wilshire 5000 Index added 9.97 to 5,448.78.
Almost six stocks advanced for every five that fell on the New York Stock Exchange, where volume soared to 431 million shares, the 12th most active day ever.
Rising Treasury bond yields undercut one of the pillars of the rally that's driven up the S&P; 500 index more than 20.5 percent so far this year. For most of that time, falling interest rates fueled a surge in financial stocks such as banks, insurers and investment banks. For example, the American Stock Exchange index of 11 brokerage stocks has climbed 48 percent this year.
Yields on 30-year Treasury bonds rose as high as 6.98 percent from 6.86 percent yesterday amid concern that economic growth may accelerate in the second half, lifting the inflation rate. They've risen 50 basis points, or a half-point, from 6.47 percent one month ago.
A flood of mergers and acquisitions among banks added to the appeal of financial stocks this year, but a preliminary agreement between Bank of Boston Corp. and Philadelphia's Corestates Financial Corp. spread doubt about whether the stocks had climbed too high.
Bank of Boston shares slumped $1.75, to $40.125, and Corestates dropped $1.125, to $33.875.
Adaptec Inc. spurted $3.625, to $39.75, after the computer component maker reported better-than-expected earnings.
LSI Logic Corp., a leading semiconductor maker, said second-quarter net income doubled to 44 cents a share from 22 cents, above analysts' forecast of 38 cents. LSI, up 75 cents to $45.50, gained as much as $2.25 to $47.
DSC Communications Corp., a maker of digital communications equipment, climbed $3.625, to $49.25. The company said it earned 44 cents a share in the second quarter, up from 31 cents last year and analysts' estimate of 41 cents.
Second-quarter earnings continued to regain the spotlight as the market recovered from Wednesday's decline. So far, of the 256 companies in the Standard & Poor's 500 index that have reported second-quarter earnings, 56.9 percent announced earnings above investors' expectations and 27.5 percent were below.
In the first quarter, 53.8 percent of the S&P; 500 companies beat analysts' estimates, while 29.9 percent fell short.
The outlook for technology stocks, which led the stock market's 8-month-old rally, preoccupied investors, as it did all week.
Thursday, Compaq Computer Corp. helped the stock market stabilize after two days of large losses by reporting stronger-than-expected second-quarter earnings, lifting a host of other technology issues. Specifically, Compaq softened the impact of Intel Corp.'s unexpectedly weak earnings earlier this week and a warning by Microsoft about its earnings outlook.