Dow Off on Eve of Fed Interest Rate Decision

Stocks closed mixed but mostly lower Tuesday, as a fresh batch of second-quarter earnings warnings and jitters over the Federal Reserve Board’s meeting kept buyers sidelined.

In the bond market, yields rose across the board, especially on shorter-term issues that would be most affected by a Fed interest rate hike.

On Wall Street, the Dow Jones industrial average eased 9.60 points to 5,720.38, though it recovered from an early loss of nearly 35 points.

The Nasdaq composite index of mostly smaller stocks also slipped, losing 6.30 points to 1,191.15.

Losing stocks outnumbered winners by 21 to 17 on Nasdaq, but winners had the edge on the New York Stock Exchange, despite the Dow’s decline.

Bond yields were steady early in the day but began to rise in the afternoon, as investors pondered a strong report on May new-home sales and another rise in the index of leading economic indicators.

The data suggested that the Fed, which concludes a policy meeting today, might soon be forced to tilt in favor of tighter credit to keep the economy from growing too quickly.

Most economists still believe the Fed will wait until August before deciding if a rate hike is necessary. But in the bond market Tuesday, the yield on three-month T-bills surged to 5.32% from 5.26% at Monday’s auction. The yield on two-year T-notes jumped to 6.22% from 6.17%.

Longer-term yields were up less sharply. The 30-year Treasury bond yield closed at 6.94%, up from 6.91% on Monday.

The rise in rates didn’t help stocks. Neither did downbeat second-quarter earnings forecasts from Digital Equipment and Mattel, among other companies.

Some analysts expect a dull session today. “With the Fed decision right in front us, investors rightly are going to sit on their hands. There are probably more people interested in their four-day weekends than stocks,” said Marshall Acuff Jr., market strategist at Smith Barney.

Among Tuesday’s highlights:

* Digital Equipment led many tech shares lower after it stunned Wall Street with word of another restructuring, owing to disappointing personal computer sales. Digital dove 5 1/2 to 40 3/8.

Also, software firm Sybase said it expects to show a loss for the quarter, and Borland International, another software producer, quantified its expected loss and announced that its chief executive had resigned. Sybase fell 1 1/4 to 18 3/4 and Borland tumbled 1 3/8 to 7 7/8.

* Document-management systems company FileNet lost 2 to 33. After the market closed, the company said it expects to report sharply higher quarterly earnings despite several adverse factors.

* Some brokerage houses downgraded two stocks that are components of the Dow index. 3M slumped 2 5/8 to 68 3/4 after Prudential Securities lowered its rating on the conglomerate. Also, Procter & Gamble fell 1 1/2 to 89 1/8 after a downgrade by Merrill Lynch.

* Retailer Sunglass Hut slumped 1 3/4 to 18 1/4 after brokerage Alex. Brown shaved earnings estimates.

* On the upside, energy stocks rose despite falling crude prices. Exxon gained 1 3/8 to 88 5/8, Mobil leaped 2 3/8 to 114 1/2 and Halliburton was up 7/8 to 53 1/4.

* Among new issues, outdoor apparel maker North Face soared from an initial price of 14 to 18 3/4 on Nasdaq.

In commodities trading, oil prices fell on forecasts, later fulfilled, for a rise in U.S. stocks and the calling off of a threatened Norwegian oil workers strike. U.S. crude oil stocks were reported 3.15 million barrels higher in the week ended June 28.

The key August crude contract on the New York Mercantile Exchange settled 40 cents lower at $21.13 a barrel.

August gasoline futures fell 0.62 cent to 60.89 cents a gallon, while August heating oil shed 0.86 cent to 54.28 cents a gallon.

Market Roundup, D5