NEW YORK -- U.S. stocks fell for a third day after a report showing a rebounding economy raised concern that interest rates will move higher and hurt corporate profits. Takeover activity helped to temper the losses.
"Too many people have been in the camp that rates and inflation are going lower," said John Rogers, chief investment officer at Ariel Capital Management, which manages $1.6 billion. "We've become a believer that ultimately rates are going to go higher."
Gains in Walt Disney Co. and Westinghouse Electric Corp. -- each involved in the acquisition of a television network -- helped the Dow Jones industrial average offset most of its losses, adding about 11 points. The 30-stock index was down as much as 41.56 to 4,666.91 before it pared its loss to 4,700.37, down 8.10. Lower prices in Caterpillar Inc., Exxon Corp. and DuPont Co. weighed on the average.
The broader market fell as well. The Standard & Poor's 500 index, which was down as much as 5.39 to 556.67, took back some of its losses, reaching 559.64, down 2.42. Falling prices in semiconductor, telephone and oil shares led the index lower.
Declines in technology leaders Intel Corp. and Microsoft Corp. -- helped pushed down the Nasdaq composite index as much as 15.04, to 986.17 earlier in the day. The index also recouped part of its losses, closing at 991.11, down 10.1.
The Russell 2000 index of small companies slipped 1.39 points, or 0.5 percent, to 298.33. The American Stock Exchange market value index, meanwhile, ended the day little changed, losing 0.01, to 523.23.
About 13 stocks fell for every nine shares that gained on the New York Stock Exchange. And 332.2 million shares traded, up 42.4 million shares from yesterday.
Signs that an economic rebound may spark more inflation hurt shares of companies sensitive to swings in the economy -- the "cyclical stocks."
Bond yields rose after the National Association of Purchasing Management reported its purchasing managers' index rose to a larger-than-expected 50.5 in July from 45.7 the month before.
The Morgan Stanley index of 30 cyclical stocks dropped as much as 4.3 points, or 1.2 percent, before recouping some of its losses to end down 1.85 points at 349.3. The Morgan Stanley consumer stock index, meanwhile, was up 0.27 at 249.76.
Caterpillar's shares slid $2.25, to $68.125, and DuPont stock lost $1 to $66. Aluminum Co. of America was down $1 to $56.
Acquisitions countered the losses. Disney benefited the most; its shares rose $2.875, to $61.50, one day after it offered $19 billion for Capital Cities/ABC Inc. And Westinghouse Electric Corp. advanced $1.125, to $14.75, after announcing a bid late today for CBS Inc. of $81 a share, or about $5 billion. CBS rose 25 cents, to $78.
Shares of educational software companies, such as Minnesota Educational Computing Co., Sierra On-Line Inc. and Spectrum Holobyte Inc., also gained, thanks to a takeover. Broderbund Software Co.'s acquisition of the Learning Co. for about $440 million in stock sent Learning's shares soaring by as much as 44.8 percent.
Investors also bet that rising rates will hurt profits at insurance companies. Allstate Corp. shares slipped $1, to $30.25, and American International Group Inc.'s stock sank $1.50, to $73.50.
After Intel, the most actively traded shares were EMC Corp., Microsoft Corp., Novell Inc., Walt Disney Co. and Ford Motor Co.