Stocks fall on worries about swine flu, banks

After months of causing trouble for the stock market, consumers gave Wall Street a break Tuesday.

A closely watched measure of consumer sentiment soared in April, prompting investors to hope that an improved outlook would translate into bigger cash register receipts.

Stocks ended with modest declines after the reading pulled the market off an early slide prompted by worries about the health of some large banks and the spread of swine flu.

“In the short term, this market is going to continue to trade on psychology,” said Matt Eads, portfolio manager at Eads & Heald Investment Counsel in Atlanta. “People are looking for anything they can grab on to, which is a sign of good news and economic stabilization.”

The Conference Board said its consumer confidence index surged 12 points this month to 39.2, its highest level since November and much higher than the 29.5 that economists on average had expected.

The index bottomed at 25.3 in February. Since then, the gauge suggests, confidence has surged along with the stock market in what is probably a case of mutually reinforcing trends.

An announcement Tuesday by IBM of a dividend hike and an increase in stock repurchases gave the market another shot of confidence, but an afternoon rally petered out in the last hour.

The Dow Jones industrial average ended the day down 8.05 points, or 0.1%, to 8,016.95 after being down as much as 86 points before the release of the consumer confidence report.

The Standard & Poor’s 500 index fell 2.35 points, or 0.3%, to 855.16, and the Nasdaq composite index fell 5.60 points, or 0.3%, to 1,673.81.

But the Russell 2,000 index of smaller companies rose 0.7%.

Advancing stocks narrowly outnumbered decliners on the New York Stock Exchange.

Shares of Bank of America sank 8.6%, and Citigroup slumped 5.9%, after the government’s “stress tests” reportedly indicated that the two financial giants should raise more capital. An index of 24 major bank stocks fell 2.4%

Shares of some firms that depend on consumer spending rose on the Conference Board report. Comcast jumped 3.1%, Starbucks rose 2.3% and Coach surged 6.1%.

IBM rose 2% after the company’s board raised its quarterly dividend 5 cents to 55 cents and nearly doubled the amount of spending authorized to repurchase stock.

Treasury bond yields rose, with the 10-year Treasury note jumping to 3% from 2.92%. The dollar was mixed against other major currencies. Gold fell $14.60 to $892.80 an ounce.

Overseas, key stock indexes slid 2.7% in Japan, 1.7% in Britain, 1.9% in Germany and 1.7% in France.