Stocks Fall Slightly As Investors Assess Rate Woes

NEW YORK (MarketWatch) -- U.S. stocks were lower in volatile trading Monday, as investors continued to monitor rising global interest rates amid more signs of global growth and hawkish talk from a Fed official.

The Dow Jones Industrial Average was down 15 points at 13,409, as 17 of its 30 components retreated, led lower by shares of Citigroup Inc. , Home Depot Inc. and AT&T Inc.

On the upside, were the likes of Alcoa Inc. , General Motors Corp. and Hewlett Packard Co. .

Also among blue chips, Johnson & Johnson gained 1%. Credit Suisse upgraded the stock to neutral from underperform, saying that it has underperformed rival pharmaceuticals by 17% and the S&P 500 by 16% over the last 12 months.

General Electric Co. and Microsoft Corp. , also on the Dow, were in focus. The Wall Street Journal reported that the companies have held discussions about the possibility of jointly acquiring Dow Jones & Co. , the publisher of this report. But they were unable to reach agreement on proceeding with a counterbid.

News Corp. has offered $5 billion, or $60 a share, for Dow Jones.

The S&P 500 fell 1.6 points to 1,506, while the Nasdaq Composite lost 4.4 points to 2,569.

Trading volumes showed 344 million shares exchanging hands on the New York Stock Exchange and 451 million trading on the Nasdaq stock market. Declining issues topped gainers by 18 to 11 on the NYSE and by 8 to 5 on the Nasdaq.

By sector, pharmaceuticals led the gains, along with utilities and broker dealers . On the downside were airlines , internet shares and real estate investment trusts .

Financial stocks, which often lead the broad market, were supported by expectations of strong results from brokers Lehman Brothers, Goldman Sachs and Bear Stearns this week.

Rising yields

On Friday stocks managed a rally, paring a portion of their heavy losses for the week, as investors sought bargains in a market battered by three days of sharp drops.

There were global stocks routs earlier last week as U.S. and foreign government bonds sold off. The selling pushed the yield on the 10-year benchmark note a high as 5.25%, equaling the federal funds rate and signaling the market expects official U.S. rates to rise soon.

"There's no data and not a lot of corporate news," said Art Hogan, chief market strategist at Jefferies & Co. "That is a day in which we will look at the collateral damage done to the markets last week and see it if is justified."

"We have a host of concerns, all of which are credible," he said. "Last week we priced in for a worst-case scenario. But none of these factors have brought the U.S. economy to a screeching halt. "

Rates were back in focus on Monday. In a speech in Ireland, Cleveland Federal Reserve President Sandra Pianalto said that the housing market's deterioration had removed up to 1% from U.S. economic growth, according to Action Economics.

She also noted that economic fundamentals remain "solid" and said inflation remains the major risk to the economy, remarks likely to reinforce investor concerns that the next Fed move could be to tighten monetary policy and increase rates.

More clues about the Fed's leanings will come on Wednesday, when the latest Beige Book regional economic survey's released, and on Friday, which Chairman Ben Bernanke will speak on inflation.

Stocks of note

Separately, the New York Times is reporting that the Bush administration has repeatedly defended Microsoft both in the U.S. and abroad against accusations of anticompetitive conduct. But some state attorneys general may pursue accusations made by Google Inc. over Microsoft's operating system.

International Business Machines Corp. disclosed that it's the suitor behind a $746 million offer for Telelogic . The Financial Express said IBM also is trying to buy Citigroup's Indian outsourcing division.

After the close of trde, there will be a mid-quarter update from Texas Instruments Inc.

Other markets

Treasurys were back under pressure, as Pianalto's remarks further fed expectations that rates will continue higher. The benchmark 10-year Treasury note was off 10/32 at 95 with a yield of 5.149%.

The New Zealand dollar, or the kiwi dollar, tumbled after the country's central bank confirmed that it had sold the currency to weaken it. The kiwi was last down 1.8% against the U.S. dollar and down 1.6% against the Australian dollar. The euro was last down 0.2% at $1.3346, while the dollar was up 0.01% at 121.72 yen.

Commodities were on the rise in the early going, with the front-month gold contract last up $4 at $649.50 an ounce.

"Bolstered by light physical buyers and on the back of an expected technical bounce, gold prices attempted a comeback on Monday morning," wrote Jon Nadler, an analyst at Kitco, in a research note.

And in energy, the front-month crude future last was 43 cents higher at $65.19 an ounce.

By Nick Godt