Dow Edges Higher, but Nasdaq Dips

The stock market stabilized and Treasury bond yields fell Tuesday as investors awaited the Federal Reserve’s decision today on interest rates.

After a sharp sell-off Monday that clipped 127 points from the Dow Jones industrial average, the blue-chip index gained 36.90 points, or 0.4%, to 9,109.85.

The Standard & Poor’s 500 index added 1.81 points, or 0.2%, to 983.45.

The technology-dominated Nasdaq composite struggled, losing 5.14 points, or 0.3%, to 1,605.61, its fourth straight decline and the longest losing streak since mid-May.

But rising stocks narrowly outnumbered falling issues on Nasdaq and on the New York Stock Exchange, in moderate trading.

The market rallied early in the day after the Conference Board said its index of U.S. consumer confidence held steady this month, even in the face of a still-weak labor market.

But many investors were on hold, waiting to see how much the Fed will cut its benchmark short-term rate, now 1.25%.

Wall Street almost universally expects the central bank to reduce its key rate to bolster the economy. But experts were divided on the size of a cut. Of more than 150 economists and analysts surveyed by Bloomberg News, 96 expect a quarter-point decline while 48 predict a half-point drop.

Bond traders, on balance, appeared to be betting on a half-point cut: Treasury yields dropped across the board Tuesday. The yield on the two-year T-note fell to 1.10% from 1.14% on Monday. The 10-year T-note yield dropped to 3.25% from 3.31%.

Dominic Konstam, head of interest rate research at Credit Suisse First Boston in New York, told Bloomberg News that he expected “a lot of disappointment” among investors if the Fed lowers its rate a quarter point instead of a half.

But the significance may be less in what the Fed does than in what it says, according to some analysts. What will matter is “what they say they see as far as economic growth and the risk of deflation,” said Brian Bush, director of equity research at Stephens Inc. in Little Rock, Ark.

“Since the Fed brought up the risk of deflation in their last meeting, I think investors will want to see their assessment as to how real that perceived risk is,” he said.

The stock market’s powerful rally since mid-March has been rooted in investors’ belief that the economy and corporate profits will pick up steam in the second half.

The Fed’s decision is expected about 11:15 a.m. PDT.

Among Tuesday’s highlights:

* Idec Pharmaceuticals and Biogen continued to slide after agreeing on Monday to merge. Idec fell 44 cents to $36.52, and Biogen lost 25 cents to $41.30.

* Grocery chain Kroger, which owns Ralphs stores in California, rose 93 cents to $16.83. Kroger cut its profit forecast for 2003 but not as much as some analysts expected.

* Some big-name tech shares continued to lose ground. Cisco Systems fell 49 cents to $16.75, Novellus Systems lost 97 cents to $35.38, and Broadcom dropped $1.40 to $24.13.

Among smaller tech names, Catapult Communications, a maker of telecommunications test systems, sank $2.13 to $10.80 after trimming this quarter’s revenue estimate by 15% to 20%.

* The Dow got a lift from Altria Group, up $1.20 to $45.05, and Wal-Mart, up 94 cents to $54.68.

* Airline stocks were strong. JetBlue surged $1.26 to $39.27, and Continental jumped 73 cents to $14.60.

* Fashion accessories retailer Claire’s Stores slid $2.50 to $26.80 after warning that second-quarter sales would be below expectations because of weaker results at its outlets in France.

* Brokerage stocks rebounded after sliding in recent days. Merrill Lynch gained 92 cents to $46.64, and Lehman Bros. was up $1.24 to $70.24.

Market Roundup, C6-7