Wall St. Rings in ’04 on Down Note

Wall Street began the new year Friday with the enthusiasm that marked its comeback in 2003, as stocks surged in early trading on upbeat economic news.

But they finished mixed as investors took profits amid fears of rising interest rates.

Treasury yields surged as traders digested the latest data.

A gauge of December manufacturing gave its highest reading in two decades, yet the news got a mixed reaction on Wall Street amid speculation that the Federal Reserve would raise interest rates in the first half of this year.

Stocks sensitive to rate changes -- such as banks, retailers and home builders -- fell.

“The primary threat this year to the market will be rising interest rates,” Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, told Bloomberg News. “That’s going to be a more telling story than earnings.”

The Dow Jones industrial average dropped 44.07 points, or 0.4%, to 10,409.85. The broader Standard & Poor’s 500 index shed 3.44 points, or 0.3%, to 1,108.48, for its first drop in five sessions; The technology-heavy Nasdaq composite added 3.31 points, or 0.2%, to 2,006.68.

Although some benchmarks finished lower, the broader market advanced.

Winners led losers by 7 to 6 on the New York Stock Exchange and by 3 to 2 on Nasdaq. Post-holiday volume was modest.

Despite Friday’s drop, the S&P; 500 index rose for its sixth straight week, its longest winning streak since 1998, with an advance of 1.1%.

The Dow gained 0.8% for the week and the Nasdaq climbed 1.7%.

Investors had plenty of profits to take after U.S. stocks rebounded in 2003, with the three benchmarks posting their first annual increases since 1999. In Friday’s trading, Bank of America led the drop in financial shares, falling $1.34 to $79.09. The company said its securities arm might face civil action by the Securities and Exchange Commission stemming from an investigation into “certain trading activities” in the unit’s San Francisco office two years ago.

Merrill Lynch fell 71 cents to $57.94, Morgan Stanley shed 89 cents to $56.98 and Wells Fargo dropped 72 cents to $58.17.

Among home builders, Centex fell $3.25 to $104.40, Pulte Homes slid $2.67 to $90.95 and KB Home slipped $1.98 to $70.54.

In the retail sector, Wal-Mart Stores fell 75 cents to $52.30, Target eased 68 cents to $37.72 and Kohl’s sank $1.08 to $43.86.

The Institute for Supply Management’s factory index showed a reading of 66.2, the highest level in 20 years and sharply higher than estimates.

In the Treasury market, the yield on the benchmark 10-year T-note climbed to 4.37% from 4.25% on Wednesday.

In other highlights:

* Piper Jaffray climbed $1.43 to $43 in its first day of trading on the NYSE (ticker symbol: PJC). The investment bank was spun off from U.S. Bancorp.

* PetroChina’s U.S.-traded shares jumped $6.65 to $63.70. A trans-China oil pipeline belonging to PetroChina, Asia’s biggest oil refiner, began delivering natural gas to Shanghai.

* Overseas, Japan’s markets were closed for the New Year’s holiday. Key indexes rose 1.4% in Germany, 1.1% in France and 0.7% in Britain.

*

Market Roundup, C4-5