Despite Fed Fears, Stocks Finish Mixed

Is the stock market really afraid of the Federal Reserve?

Major indexes closed mixed on Monday in thin trading, as an early decline brought out bargain hunters--despite the looming Fed policy meeting today.

The Dow industrials, which sank 194 points on Friday on worries about rising interest rates, eased just 59.85 points, or 0.6%, to 10,853.47. The Dow fought back from a 168-point early decline.

The Nasdaq composite surprised traders with a 1.3% gain to 2,561.84, after falling 2.1% on Friday.

Losers still swamped winners by 2 to 1 on the New York Stock Exchange, but trading was anemic as many players simply stepped aside. On Nasdaq, losers had just a 22-to-18 edge over winners.

A government report Friday on April consumer price inflation showed a surprising surge, triggering a sell-off in bonds that drove long-term yields to fresh 12-month highs--and raised the specter of a Fed increase in short-term rates to cool the economy.

But bonds were fairly calm on Monday. The yield on the bellwether 30-year Treasury bond ended at 5.89%, down from 5.91% on Friday.

Still, many analysts expect the Fed to announce today that it has adopted a “bias” toward raising rates in the future.

On Wall Street, where highly valued growth stocks have been under pressure for weeks as bond yields have risen, analysts say it’s unclear whether those stocks will continue to slide if the Fed does adopt a tightening bias--or whether their declines have ended in the near term. Some of those shares rallied Monday. Coca-Cola gained $1.88 to $67.13, Microsoft rose $2.25 to $79.13 and Charles Schwab jumped $4.81 to $114.19.

Foreign markets, taking their cues from Wall Street’s action on Friday, were broadly lower on Monday. The Tokyo market sank 2.3%, Hong Kong shares dropped 2.1% and London slid 2.1%. In Mexico City, the main index dropped 1%.

If inflation is going to be a problem, nobody told the gold market: Gold futures for June delivery in New York fell $1.40 to $274.80, lowest closing price since June 1979.

Last August, gold hit an intra-day low of $271.60 before closing at $275.40, a 20-year low at the time.

Gold is under pressure as more countries decide to sell reserves.

Among Monday’s highlights:

* Tech and Internet stocks rallying included Dell, up $2.06 to $43.25; Texas Instruments, up $4.13 to $110.13; and America Online, up $10.88 to $136.13.

* Takeover deals helped market sentiment. Wyman Gordon soared $5.69 to $18.94 after Precision Castparts agreed to acquire it for $20 a share in cash.

* On the downside, bank stocks fell on rate worries. Wells Fargo was off $1.13 to $40.88, and Mellon lost $1.75 to $69.44.

Market Roundup, C13