Stocks Finish Mixed as Rate Fears Take Hold

Blue-chip shares managed a small gain, but most stocks fell Monday as another day of big merger news provided only a fleeting distraction from renewed concern about interest rates.

The dollar rose against the German mark and held steady against the Japanese yen amid concern that central banks might be preparing to take steps to support the Japanese currency.

The Dow Jones industrial average closed at 9,091.52 for a 36.37-point gain, though at one point during the session it had advanced nearly 135 points.

Broader stock indexes surrendered all of their gains as interest rates rose in a jittery bond market.

Bond traders were particularly focused on key economic reports due this week--the producer price index for April, to be released Wednesday, and the consumer price index, to be released Thursday--and with a Federal Reserve Board interest-rate policy meeting scheduled for next Tuesday. will be looking to the reports for reassurance that the Fed will have no reason to raise interest rates.

Stocks opened higher amid news that Baby Bell SBC Communications, continuing an aggressive campaign of takeovers, would acquire Baby Bell Ameritech in a stock deal valued at $56 billion.

However, “the long bond moving down early in the day took the steam out of the equity markets, which were driven up on the mergers,” said Henry Herrmann, chief investment officer at Waddell & Reed.

U.S. bonds suffered their biggest loss in two weeks, pushing benchmark 30-year yields above 6%, as the Treasury and other borrowers prepared to sell about $33 billion of debt in coming days.

Treasury yields are rising “in anticipation of the sales,” said Robert Alley, who manages $2.5 billion at Aim Advisors in Houston.

The 30-year Treasury bond fell, pushing its yield up to 6.03%, the highest since April 29, from 5.98% on Friday. The Treasury will sell $10 billion of three-year notes today--its last scheduled sale of the securities--and $12 billion of 10-year notes Wednesday. Borrowers including Long Island Power Authority, Asia Development Bank and Owens-Illinois are gearing up to sell more than $10 billion of debt soon.

Wall Street firms that buy Treasury debt at auction and then resell it to investors often drive up yields before a government debt sale to help drum up demand. Still, expectations for reduced government borrowing and the first budget surplus in almost 30 years may make it easier for the government to find buyers for the new securities, traders said.

“People are nervous for the stock market at high valuations, and for the market to make big progress from here, you need a big rally in the bond market, but the opposite is occurring,” Herrmann said.

Declining issues outnumbered advancers by a 9-to-7 margin on the New York Stock Exchange, where volume totaled 560.84 million shares, down slightly from Friday’s modest pace.

The Standard & Poor’s 500 fell 1.50 points to 1,106.64, and the Nasdaq composite index fell 16.30 points to 1,848.07. The NYSE composite index was off 0.45 point at 575.27. The Russell 2,000 index of smaller stocks fell 2.60 points to 476.90.

Among Monday’s highlights:

* The Dow was carried by two stocks: DuPont, up $5.44--or the equivalent of more than 20 Dow points--after the chemical maker announced plans to divest its Conoco energy unit, and GM, up $2.69 to $71.38 as the Dow’s second biggest gainer.

* Among the day’s headline stocks, Ameritech rose $2.13 to $46 and was the third-most- active NYSE issue after SBC, which slumped $3.56 to $38.81. PolyGram, which is expected to be taken over soon, rose $2.56 to $52.13, also on the NYSE.

In late currency trading in New York, the dollar closed at 1.7763 marks, up from 1.7693 at Friday’s close and at 132.75 yen vs. 132.83 on Friday.

Overseas, Tokyo’s Nikkei 225-stock average rose 1.5%, Frankfurt’s DAX index rose 1.6% and London’s FTSE-100 rose 1.0%.