Modest Rally Lifts Major Indexes; Bond Yields Rise

Investors returned from the long holiday weekend in a better mood, pushing major stock market indexes modestly higher Monday in light trading.

But another uptick in Treasury bond yields hurt real-estate-related shares. An index of real estate investment trust stocks incurred its biggest one-day loss in nearly 10 years.

The broader market rallied at the outset Monday and mostly held on to its gains by the close. Traders said a fragile truce between U.S. forces and Iraqi rebels in Fallouja, the center of recent fighting, helped sentiment on Wall Street.

The Dow Jones industrial average gained 73.53 points, or 0.7%, to 10,515.56, after losing 0.3% from Monday through Thursday last week. Markets were closed Friday in observance of Good Friday.

The Standard & Poor’s 500 index added 5.88 points, or 0.5%, to 1,145.20 on Monday, after falling three straight days through Thursday.

The Nasdaq composite index was up 12.60 points, or 0.6%, to 2,065.48.

Winners topped losers by about 4 to 3 on Nasdaq, while on the New York Stock Exchange winners had only a slight edge. Trading remained subdued, with many market players apparently taking Monday off.

Analysts said many investors remain bullish on stocks based on expectations of strong corporate earnings growth this year. Scores of major companies are expected to report their first-quarter results this week.

“The general feeling is that [earnings] will come in at the higher end of forecasts,” said William Dwyer, chief investment officer at MTB Investment Advisors in Baltimore.

In the bond market, Treasury yields edged up to their highest levels since early January, continuing the recent trend, on concerns that economic strength would drive all interest rates higher this year.

San Francisco Federal Reserve Bank President Robert Parry, who will retire in June, said in a newspaper interview that the Fed’s key short-term rate could rise well above the current 1% even if inflation were to stay depressed.

“Let’s assume inflation averages 1% to 2%,” Parry said. “Then you could see maybe the natural [federal] funds rate would be -- I don’t know -- 3.5%, something like that.”

Other Fed officials in recent months have warned that the Fed’s benchmark rate has been kept artificially low to give the economy a chance to build a head of steam.

Many economists believe the Fed would begin to raise its rate if the nation generated significant job growth over a period of a few months. An upbeat March jobs report, issued April 2, sparked the latest uptrend in bond yields.

The 10-year Treasury note yield, a benchmark for mortgage rates, rose to 4.23% on Monday from 4.19% at the end of last week. It now is the highest since it was 4.26% on Jan. 8.

The two-year T-note yield was at 1.88% on Monday, compared with 1.85% at the end of last week. It bottomed at 1.46% on March 11.

Among Monday’s highlights:

* Energy stocks were broadly higher as crude oil and gasoline prices continued to rise. Near-term oil futures in New York gained 70 cents to $37.84 a barrel.

Exxon Mobil rose 66 cents to $43.11, ChevronTexaco surged $1.53 to $91.47, Unocal added 70 cents to $37.60 and Valero Energy jumped $2.45 to $60.25.

* Other commodity-related stocks also were strong, including Potash, up $3.87 to $88.96; Weyerhaeuser, up $1.72 to $67.05; and Alcan, up 88 cents to $45.47.

* Some investors continued to bid up shares of small companies that sell products or services related to homeland security needs. IPIX rocketed $6.66 to $22.16, Digital Recorders leaped $5.46 to $14.07 and Mace Security soared $4.95 to $8.

Some analysts say the surge in those stocks suggests a frothy tone to the market overall.

* Footwear stocks, which have been hot recently, again attracted buyers. Deckers Outdoor soared $3.19 to $28.40, Timberland was up $1.28 to $61.75 and Brown Shoe added 81 cents to $39.

* Some cable, radio and broadcasting stocks rallied. Cable giant Comcast rallied $1.10 to $30.34 on a bullish report from Banc of America Securities.

Also in the media group, Entercom gained $1.39 to $48.09, Univision rose 81 cents to $34.83 and Citadel Broadcasting jumped 79 cents to $19.04.

* On the downside, real estate investment trusts fell sharply, continuing a slide that began April 2, when bond yields began to surge on the heels of the government’s upbeat report on March employment trends.

Higher interest rates could make it more difficult for REITs to finance properties. What’s more, the relatively high dividend yields of most REITs could become less appealing if bond yields offer more competition.

A Morgan Stanley index of 115 REITs plunged 5.1% to 570.91. It was the largest single-day drop since the index was created in 1995.

Rouse slumped $3 to $44.35, First Industrial Realty dropped $2.68 to $34.88 and Arden Realty was off $1.28 to $28.69.

* Shares of home builders also were lower. Pulte Homes lost 91 cents to $49.69, Ryland fell $1.88 to $79.37 and William Lyon dropped $1.71 to $86.24.