The Federal Reserve Board's decision to hold interest rates steady wasn't supposed to surprise anyone Tuesday, but the news still caused stock and bond markets to surrender midday rallies.
The Dow Jones industrial average, up 18 points at noon EDT, closed off 4.33 points at 4,765.60. The broader market was mixed.
Long-term bond yields also were bumped up from the day's lows after the Fed's meeting adjourned with a brief announcement indicating no change in short-term interest rates.
"You can characterize the session as a day of modest anticipation and modest disappointment surrounding the Fed's meeting," said Charles G. Crane, director of research at Spears, Benzak, Salomon & Farrell Inc.
Falling stocks outnumbered winners by about 11 to 10 on the New York Stock Exchange and by 21 to 17 on the Nasdaq market. Trading was active.
With no apparent chance of an interest rate cut before November--after the Fed opted to hold the course on Tuesday--traders said investors are increasingly nervous that stocks can be easily undercut by weak third-quarter corporate earnings.
In a flurry of earnings "pre-announcements" in recent weeks, major companies such as Caterpillar, Colgate-Palmolive and Advanced Micro Devices have warned that third-quarter results won't meet expectations. Many of the companies have cited the weak global economy as the culprit.
Those announcements have sparked a broad investor move out of stocks of many industrial and technology companies--businesses most vulnerable to the economy's swings--and into shares of drug, food and utility companies, whose earnings growth tends to be more predictable.
"Investors are increasingly faced with the proposition of decelerating economic growth, and with no help from the Fed, they're being drawn to superior-earning companies," said Philip Orlando, money manager at First Capital Advisers.
In the bond market, meanwhile, yields were mostly higher Tuesday as selling accelerated modestly after the Fed meeting.
The Treasury sold new two-year notes at an average yield of 5.86%, but by the end of trading the two-year note was yielding 5.91%.
The 30-year T-bond yield, however, closed slightly lower, slipping to 6.57% from 6.58% on Monday, after trading as low as 6.54%.
In currency trading, the dollar rose again, closing at 101.08 Japanese yen in New York, up from 100.47 on Monday, and at 1.4393 German marks, up from 1.4335.
Among Tuesday's highlights:
* Technology stocks were mostly lower again. Norand, which makes inventory-data tracking systems, plummeted 17 3/8 to 17 1/4 after reporting a quarterly loss.
Other tech losers included FileNet, down 1 7/8 to 42 1/8; Dell Computer, off 4 3/4 to 82 1/4; Autodesk, down 2 3/8 to 43 3/4, and Qualcomm, down 3 to 43.
The Nasdaq composite index, heavy with tech issues, fell 8.10 points to 1,038.05. The index now is 3% below its recent record high.
* Energy and industrial stocks losing ground included Alcoa, off 7/8 to 51; Cooper Industries, down 7/8 to 34 1/2; Illinois Tool Works, down 1 3/8 to 57 1/8, and chemical firm W.R. Grace, off 2 1/4 to 66 1/4.
* The day's winners included many electric and phone utilities, as investors searched for stable-growth issues. The Dow utility index jumped 1.1% to a 1995 high of 211.31.
* Drug, food and consumer-products stocks continuing to gain included Gillete, up 2 1/8 to 47 3/4; Bristol-Myers, up 1 3/8 to 74 1/4; General Mills, up 1 7/8 to 55 1/4; Philip Morris, up 7/8 to 81 1/2; McDonald's, which added 3/8 to 41 3/8, and Dial, up 1 5/8 to 25 5/8 after announcing a new cost-cutting program.
In foreign trading, Tokyo stocks rebounded despite news of huge bond trading losses at Daiwa Bank. The Nikkei-225 index leaped 355.55 points to 17,921.98.
But Latin American markets were sharply lower on fears of higher interest rates across the region. Mexico's Bolsa stock index tumbled again, falling 46.58 points, or 1.9%, to 2,412.01.
Argentina's Merval index gave up 1.2%, Brazil's Bovespa index sank 0.8% and Chile's IPSA index was down 2.2%.
* ON-LINE INVESTING SEC to open investment information site on Web. D4
Market Roundup, D8