Stocks tumble as bond yields spark rate worry

03/06/2006

NEW YORK (Reuters) - U.S. stocks sank on Monday as a jump in 10-year Treasury note yields to a 21-month high rattled investors by signaling higher interest rates ahead.

Those concerns hurt shares of interest rate-sensitive utility stocks, while energy shares like Exxon Mobil Corp. (XOM) slid as crude oil prices fell 2 percent.

Monday’s session was the third down day in a row for all three major U.S. stock indexes. The Dow closed below 11,000.

The Dow Jones industrial average <.DJI> fell 63.00 points, or 0.57 percent, to end at 10,958.59. The Standard & Poor’s 500 Index <.SPX> slipped 8.97 points, or 0.70 percent, to finish at 1,278.26. The Nasdaq Composite Index <.IXIC> dropped 16.57 points, or 0.72 percent, to 2,286.03.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note rose to 4.74 percent, the highest level since June 2004, when the Fed began raising short-term interest rates. Its price, which moves in the opposite direction of the yield, slid 15/32 to 98-2/32.

Rising interest rates worry Wall Street because they can squeeze corporate profits and curb consumer spending.

“The worry is that the lid, or the cap, on interest rates is now off,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

“If interest rates go meaningfully higher, the stock market may hit the wall,” he added, suggesting that higher interest rates also could entice investors to move money out of stocks and into bonds.

Selling accelerated in mid-afternoon as stock indexes fell below key technical support levels, traders said.

All but one of the 32 stocks in the Standard & Poor’s 500 utilities index <.GSPU> finished lower, pushing the index down 2.2 percent.

OIL SECTOR FALLS, TELECOMS SHINE

Oil prices slid as OPEC members indicated the cartel would not cut production at its meeting this week. U.S. crude for April delivery fell $1.26 to settle at $62.41 a barrel on the New York Mercantile Exchange.

That pressured shares of energy and oil services companies. Shares of Exxon Mobil Corp. (XOM), the world’s largest publicly traded oil company, fell 1.6 percent, or $1.00, to $59.98 on the New York Stock Exchange, ranking as the biggest weight on the S&P 500. It also dragged on the Dow industrials.

AT&T Inc.’s (T) announcement on Sunday that it planned to buy BellSouth Corp. (BLS) for $67 billion in stock boosted telecommunications shares.

BellSouth stock rose nearly 10 percent, or $3.05, to $34.51 on the NYSE, while AT&T lost 3.5 percent, or 97 cents, to close at $27.02 on the NSYE. AT&T’s decline pulled on both the Dow Industrials and the S&P 500.

The U.S.-listed shares of Research In Motion Ltd. (CA:RIM) (RIMM), the maker of the popular BlackBerry portable e-mail devices, offered another bright spot. Shares of the company shot up 15.1 percent, or $10.84, to $82.76 on the Nasdaq after it settled a patent dispute on Friday.

In economic news, pending sales of U.S. homes slipped as the housing market slowed. A separate report said new orders at U.S. factories fell in January by 4.5 percent, the most since 2000, as aircraft orders fell, the government said. Economists had forecast a drop of 5.3 percent.

Trading was moderate on the New York Stock Exchange, where about 1.65 billion shares changed hands, slightly above the 1.62 billion daily average for last year.

Volume was active on Nasdaq, where about 2.17 billion shares traded, above the 1.8 billion daily average last year.

On the Big Board, decliners outnumbered advancers by about 7 to 3. On Nasdaq, about two stocks fell for every one that rose.