Rate-Fearful Markets Do Slow Burn

Stocks closed broadly lower Monday, but in the quietest session of the year, as investors worried about rising interest rates and took profits from Friday’s modest rally. Big-name technology stocks fell sharply.

The Nasdaq composite index fell 147.44 points, or 3.9%, to 3,669.38, while the Dow Jones industrial average inched up 25.77 points, or 0.2%, to 10,603.63.

Broader stock indicators were mostly lower. The Standard & Poor’s 500 fell 0.6%. And losers swamped winners by 17 to 12 on the NYSE and by 13 to 7 on Nasdaq.

But NYSE composite volume totaled just 946 million shares, and Nasdaq also had its quietest day of 2000, with 1.11 billion shares changing hands.

Traders said the most significant action in the market came from investors selling stocks to capture short-term gains from a solid rally Friday, when the Dow rose 165 points and Nasdaq rose 96.

Cisco Systems dropped $5 to $62.75 on Monday after an article in Barron’s said the company’s stunning growth rate could slow if Cisco stops acquiring companies at a rapid rate.

Among the big tech stocks that lost ground were Oracle, which fell $4.50 to $72.31; Intel, off $5.75 to $117.63; and Sun Microsystems, which fell $5.13 to $85.38.

Other sectors were mixed, as investors awaited next Tuesday’s meeting of the Federal Reserve, which is expected to raise interest rates for the sixth time since last June.

Some economists expect the Fed to raise rates half a percentage point. The last five rate increases have come in a series of modest, quarter-percentage-point hikes.

“The momentum in the economy gives the Fed ample reason to boost rates” by half a point, said Joseph T. Keating, chief investment officer for the Kent Funds in Grand Rapids, Mich.

While some Wall Street analysts believe investors would welcome a sharper increase as a sign that the Fed is finally nearing the end of its cycle of rate increases, the uncertainty has contributed to a sharp drop in trading activity in the last few sessions.

“Despite the entrenched optimism in the market, investors will not be able to ignore a more aggressive Federal Reserve,” said Sung Won Sohn, chief economist at Wells Fargo.

Rising interest rates are generally bad for stocks because they cut into corporate profits by increasing the cost of borrowing money. Last week, the rate-sensitive financial sector bore the brunt of investors’ worries and fell steeply, although there was a slight recovery Monday.

Fears of higher rates and inflation continued to dog the bond market as bond prices slumped and yields rose.

The price of the 10-year Treasury note fell $3.75 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 6.56% from 6.50% late Friday.

Euro bloc finance ministers, meantime, pledged to boost their flagging single currency by speeding up budget cuts and economic reforms, while declining to publicly endorse the policy of buying euros in the open market.

But the show of support echoed prior communiques and had little effect on the value of the euro, which continued to hover at a value of just under 90 U.S. cents on Monday.

The ministers also doubled the ceiling on the European Central Bank’s foreign-exchange reserves to 100 billion euros ($90 billion), giving the central bank a larger war chest to fend off speculative attacks on the euro.

While the euro bloc’s national central banks sit on currency and gold reserves of 350 billion euros ($315 billion), the ECB had put only 44 billion euros ($39.6 billion) under its direct control and hasn’t dipped into that to stem the euro’s decline.

Among Monday’s highlights:

* Investors turned “defensive” once again, lifting such sectors as food stocks, drug stocks, utilities and energy shares on an otherwise down day.

The Dow Jones utility stock index gained 1.3%. In the energy sector, rising crude oil prices helped boost Chevron $1.06 to $91.81 and Halliburton $1.50 to $48.38.

* While many tech shares fell, Verio, an Internet service provider and Web hosting company, soared $22.38 to $58.31 after Japan’s NTT Communications agreed to acquire it for about $5 billion in cash.

Also, San Diego-based MP3.com leaped 31%, up $3.25 to $13.63, after it announced it reached a licensing agreement with closely held Broadcast Music, which collects music royalties. The agreement might presage a way to avoid copyright conflicts with the company’s Internet music-sharing technology.

Market Roundup, C14-C15