Interest Rate, Earnings Doubts Break Market Advance

Stocks fell sharply Tuesday, halting a run at new highs in the Nasdaq market, as investors remained antsy about interest rates and company profits for the nearly finished quarter.

The Dow Jones industrial average fell 94.35 points to 10,721.63 after a rebound attempt failed during afternoon trading.

Broader stock indicators also posted steep losses.

The technology-laden Nasdaq composite index came within 10 points of its April 26 record close of 2,652.05, but it finished the day 50.02 points lower at 2,580.26. The loss ended a five-session winning streak that boosted the index by 232 points, or nearly 10%.

Analysts said investors are growing hesitant before the impending rush of company earnings reports for the second quarter, which ends this month.

“We’re very choppy ahead of the earnings season,” said Tony Dwyer, chief equity strategist at Ladenburg Thalmann & Co. But, he added, because there haven’t been many major warnings from companies, “earnings should be good.”

Meanwhile, with no new economic data released Tuesday to steer the market, investors focused on next week’s meeting on inflation and interest rates at the Federal Reserve.

While most observers say the Fed will probably nudge lending rates higher to slow the economy, this week’s increase in bond market interest rates has proved unsettling.

The Dow slid 39 points Monday as the yield on the 30-year Treasury bond, a key influence on interest rates, headed further over the closely watched 6% mark. On Tuesday, the yield rose to 6.06% from 6.02%.

Higher interest rates often unnerve the stock market because they reduce corporate profits.

Declining issues outnumbered advancers by a 9-7 ratio on the New York Stock Exchange and by 7 to 5 on Nasdaq. NYSE volume was light.

The Standard & Poor’s 500 index fell 13.12 points to 1,335.88, the NYSE composite index fell 3.83 points to 633.11, and the Russell 2,000 index of smaller companies fell 2.11 points to 447.33.

Among the highlights:

* Heavy-industrial companies sensitive to the pace of economic activity led the Dow’s decline. DuPont fell $2.44 to $67.75, International Paper dropped $1.88 to $52.63 and AlliedSignal eased $1.56 to $66.50.

* Lehman Bros. Holdings skidded $3.69 to $56.63 after the fourth-biggest U.S. securities firm reported second-quarter earnings of $2.09 a share, higher than the $1.68 average estimate from analysts polled by First Call.

Other financial stocks were hard hit, as Goldman Sachs Group, which reports its second-quarter profit today, lost $1.50 to $68, while Morgan Stanley Dean Witter, which reports Thursday, fell $3.56 to $96.19. Merrill Lynch dropped $2.50 to $75.75 and PaineWebber Group declined $2.13 to $41.44.

* Equipment maker Covad Communications Group of Santa Clara, Calif., slid $2.38 to $43.88 despite being rated “buy” in new coverage by a Bank of America Securities analyst, who set an 18-month target price of $55.

* Among leading technology names, IBM slumped $1.38 to $123.38 after jumping $4 on Monday as the Dow’s strongest component. In Nasdaq trading, Cisco Systems dropped $2.13 to $59.50 and Microsoft declined $2.44 to $86.50.

Market Roundup, C9