Stock Indexes Struggle Despite Rally in Long-Term Bonds

Memo to stock market: When bond yields fall, share prices are supposed to rise.

Major stock indexes struggled Tuesday despite another rally in long-term bonds that pushed yields down to a one-month low.

The Nasdaq composite index traded above the historic 3,000 mark for much of the day, then skidded in late trading to end with a gain of 13.98 points, or 0.5%, at a record 2,981.63.

The Dow industrials ended down 66.67 points, or 0.6%, at 10,581.84, after rising as high as 10,751.

Although late-afternoon sell-offs typically aren’t good news for markets that are trying to sustain a bullish tone, analysts noted that winners still topped losers by 16 to 13 on the New York Stock Exchange and by 21 to 19 on Nasdaq.

Trading volume continued to be heavy on both markets.

Nasdaq, in crossing the 3,000 mark, might have been its own worst enemy in terms of encouraging profit takers.

“With the Nasdaq over 3000, it could have triggered a little selling,” Brian Finnerty, a trader at C.E. Unterberg Towbin, told Bloomberg News. “It takes a while to get through these big numbers.”

But the 3,000 range has arrived fairly quickly: The Nasdaq index crossed the 2,000 mark for the first time in July 1998.

The bond market, meanwhile, is suddenly blooming with optimists, relatively speaking.

The bellwether 30-year Treasury bond yield ended at 6.14%, down from 6.18% on Monday and the lowest since Oct. 4.

Some bond investors seem to be less concerned about another potential Federal Reserve interest rate hike. That may be gutsy, with the government’s report on October employment--key data for the Fed in assessing the economy’s strength--due Friday.

Today the Treasury will announce its quarterly plans for longer-term note sales. The market is figuring the Treasury will auction $15 billion in five-year notes and $12 billion in 10-year notes, both next week.

Given the budget surplus, Uncle Sam doesn’t need to float new 30-year bonds this time.

A continuing worry for bonds: the dollar. At 104.12 yen on Tuesday, it is nearing the multiyear low of 103.72 set Sept. 23.

The yen is getting a fresh boost from expectations for a big economic stimulus spending package from the Japanese government. Details are due in mid-November.

Among Tuesday’s highlights:

* Many financial stocks continued to advance--a good sign to some traders, given that strength in this sector is often a harbinger of lower interest rates. But the stocks also are getting a boost from expectations for a new merger wave as Depression-era banking laws are swept away by the financial reform bill recently hammered out by Congress and the White House.

Gainers included Suntrust Banks, up $1.44 to $74.81; Wells Fargo, up 50 cents to $47.38; City National, up $1.56 to $41; and Golden West Financial, up $3.44 to $114.06. Golden West announced a 3-for-1 stock split.

* The tech sector was mixed, with Intel up $1.50 to $77.50, Oracle up $1.81 to $53 and Apple up $2.63 to $80.25, while IBM lost $1.94 to $94.81.

Internet stocks were no help in the Nasdaq-3,000 quest, with most losing ground. EBay fell $5.75 to $131.25 and EToys dropped $4.69 to $50.38, the latter reflecting that the company’s underwriter said last week it will release lockup restrictions on 10% of the stock, allowing those holders to sell.

* Gilead Sciences plunged $14.19 to $49 after a Food and Drug Administration panel rejected the biotech firm’s anti-HIV pill, saying it wasn’t shown to be safe and effective.

* Mattel rose 56 cents to $14.13. A little-known Cayman Islands investment firm is offering to buy 3% of the company’s shares for $14.35 a share, and said it hopes to raise its stake over time.

Market Roundup, C11