Stocks turned lower and bond yields rose Wednesday on fears that the Federal Reserve Board will not cut short-term interest rates any time soon despite a slowdown in the economy.
At the close, the Dow Jones industrial average was 23.17 points lower at 4,462.03, after being down all day.
In the bond market, the yield on the benchmark 30-year Treasury bond rose to 6.56% from 6.51% on Tuesday, while its price, which moves in the opposite direction, fell 23/32, or $7.1875 on a $1,000 bond.
Analysts said the mood of the markets turned sour after Fed Chairman Alan Greenspan said that although the evidence is clear that there has been a quite pronounced" economic slowdown, he did not see any looming shocks to the financial system that disturb him.
His comments came after repeated signs of a slowdown in growth, from the manufacturing and real estate sectors to retail spending and employment.
"You have to conclude that Greenspan has no intention of easing," said Phil Orlando, equity portfolio manager at First Capital Advisers.
"The [stock] market should be flat into [the data] but certainly both [the stock and bond] markets have had powerful rallies and any nervousness on the part of investors will result in profit taking," Orlando said.
On the Big Board, declining issues led advancers by about 3 to 2, with 327.80 million shares changing hands, down from 340.49 million on Tuesday.
Most broad-market stock indexes ended lower. The NYSE's composite index fell 1.27 points to 286.96. The Standard & Poor's 500-stock index fell 2.42 points to 533.13. But the Nasdaq composite index rose 2.18 to 881.58, mostly on the strength of computer issues.
Greenspan's comments aided the dollar, which closed higher against most major currencies.
The greenback closed in New York at 1.414 German marks, up from 1.411 marks Tuesday. The dollar also climbed to 84.90 Japanese yen from 84.67 yen.
Among Wednesday's highlights:
* The Dow average was led lower by IBM, down 1 1/2 to 89 7/8; J.P. Morgan, off 1 1/4 to 71 1/4; Merck, down 1 1/8 to 48 5/8, and United Technologies, which fell 1 to 77 1/2.
* IBM was down after the company made a surprise hostile bid on Tuesday for Lotus. Lotus shares rose 9/16 to 62 3/8 in Nasdaq trading following reports that the software company was seeking a rival bid.
* Gainers included Caterpillar, which rose 5/8 to 60 3/4, and Boeing, which added 1/2 to 61 1/4.
* Health maintenance organizations posted gains on hopes that the group's outlook was improving. United Healthcare was up 2 to 41 3/8, U.S. Healthcare rose 2 3/8 to 34 3/8 and Sierra Health gained 2 1/2 to 29 1/4.
* Airlines rose after Delta said it expected to top Wall Street earnings expectations for the current quarter. Delta rose 1 3/4 to 68 1/4, AMR Corp. gained 1 3/8 to 69 3/8, UAL Corp. was up 4 1/8 to 120 1/4 and Southwest Airlines rose 1 1/4 to 23 1/4.
The surge in airline shares boosted the Dow Jones transportation average by 11.18 points, to 1,653.91.
* Intel closed up 3/4 to 113 1/8 after announcing plans for an interactive deal with Oracle Corp.
* Iomega Corp. rose 4 to 22, and Hogan Systems was up 2 3/8 to 11 1/8 after announcing it had hired Morgan Stanley to help it explore strategic alternatives.
* Trump Hotels was unchanged at 14 in its first day of trading. Traders said that Wall Street's reception was weak after the shares were priced at the low end of their $14 to $16 range.