News of a surprising surge in consumer optimism prompted a broad selloff in the Treasury market Tuesday, driving bond yields sharply higher for the first time in four sessions.
The Conference Board survey seemed to contradict recent reports of an economic slowdown earlier this year. A series of data showing slower, non-inflationary growth fueled a three-month rally in the bond market.
Inflation erodes the value of securities that pay a fixed rate of return, such as bonds.
By the close, the yield on the Treasury's key 30-year bond had risen to 7.39% from a nine-month low of 7.31% on Monday. Its price, which moves inversely from the yield, dropped 29/32 point, or $9.06 per $1,000 in face value.
Prices of short-term Treasury securities also rose.
Market players had little reaction to a decision by the Federal Reserve Board to leave interest rates unchanged at its policy-making meeting Tuesday. The decision was widely expected by investors and traders.
Investors instead focused on an increase in the Conference Board consumer confidence index, which gauges spending and borrowing patterns, to 101 in March from an upwardly revised 99.4 in February.
Adding to anxiety about economic growth was the afternoon release of the Johnson Redbook Service report, which showed national retail sales up 1.3% in the first four weeks of March from February's level.
On Wall Street, the stock market, relieved that the Fed did not raise interest rates, maintained its composure despite the sharp rise in bond rates, closing mixed.
The blue-chip indicator, which had marched to three closing records in a row and to eight new highs in the previous 12 sessions, retreated for the first time since March 21, losing 5.53 points to close at 4,151.81.
But several broader stock measures performed better. The New York Stock Exchange composite index crept ahead 0.20 point to 271.92, Standard & Poor's 500-stock index climbed 0.70 point to 503.90, and the Nasdaq Stock Market composite rose 3.51 points to 826.14. Although the gains were minor, all three indicators reached all-time highs.
In the broader market, gainers and losers ended the session almost even on the NYSE. Volume on the Big Board's floor expanded to 320.37 million shares, up from 296.30 million on Monday.
Among Tuesday's highlights:
* Apparel retailer Limited gained 2 1/2 to 22 after the company announced a restructuring plan.
* Dow Chemical rose 2 5/8 to 71 7/8. A judge in a Houston breast implant trial reversed a jury's verdict and ruled that the company isn't liable for damages.
* Adobe Systems gained 3 to 50 1/4. The technology company formed an alliance with IBM to develop printing and publishing systems.
* Intel, which filed a proposal in California state court to settle a class-action lawsuit concerning a flaw in its flagship Pentium microprocessor, rose 1 to 88 1/2.
* Apple Computer fell 2 13/16 to 34 3/8 after its investment rating was lowered to "underperform" by Salomon Bros.
Overseas markets were mixed. Tokyo stocks shot up after a report that the Bank of Tokyo and Mitsubishi Bank had agreed to merge. The 225-share Nikkei average index closed up 585.48 points, or 3.64%, to 16,681.73. In Frankfurt, the DAX 30-share average ended 35.94 points lower at 1,910.96, while London's FTSE-100 average lost 21.5 points to end at 3,128.3.
Elsewhere, the dollar tumbled against the Japanese yen and the German mark after the Fed decided against raising interest rates. The dollar closed in New York at 88.90 yen and 1.388 marks, down from 89.45 yen and 1.406 marks on Monday.
Market Roundup, D6