Stocks’ Rally Takes a Breather

Stocks posted their first noteworthy losses of 2006 on Thursday as analyst downgrades of two Dow Jones industrials and rising oil prices prompted investors to take profits one session after the major indexes reached multiyear highs.

Analysts said Coca-Cola and JPMorgan Chase could face difficulties in 2006 with a slowdown in the economy and limited spending by consumers -- both of which could have a much broader effect on stocks as the year goes on.

Oil futures prices initially rose, depressing stocks, but ultimately lost ground and settled at $63.94 a barrel in New York, unchanged from the previous session. The volatility was prompted by the breakdown of talks with Iran over its restarted nuclear research program.

Despite the losses and lingering uncertainties, analysts said Wall Street’s January rally probably would continue.

“You’re seeing some selling now, some consolidation maybe, but I’d be cautious of that,” said Brian Williamson, a trader at Boston Co. Asset Management. “The market’s been very resilient. Investors have been very quick to buy if they get a little good news.”

The Dow average fell 81.08 points, or 0.7%, to 10,962.36.

Broader indicators also eased. The Standard & Poor’s 500 index lost 8.12 points, or 0.6%, to 1,286.06, and the Nasdaq composite dropped 14.67 points, or 0.6%, to 2,316.69.

Declining issues topped advancers by about 5 to 3 on the New York Stock Exchange.

U.S. Treasury bond yields fell after an auction of Treasury Inflation Protected Securities was met with surprisingly strong interest, particularly from indirect bidders. Because that category includes purchases from overseas central banks, the auction results assuaged concerns about a possible waning of foreign demand for U.S. government debt.

The 10-year TIPS notes were sold at a yield of 2.025% and drew 1.85 bids per dollar of debt on offer, up from the 1.78 average of the two 10-year TIPS auctions in 2005.

“The TIPS auction was better than anticipated, especially the indirect bid,” said Frank Hsu, director of global fixed income at brokerage Fimat.

Bond yields fall as prices rise. The yield on the benchmark 10-year Treasury note fell to 4.41% from 4.46% on Wednesday.

Stock investors were not impressed by a lower-than-expected rise in unemployment claims. The Labor Department said the number of new claims for jobless benefits rose by 17,000 last week to 309,000; economists expected an increase of 24,000.

With the economic data still strong and corporate profits expected to remain strong as fourth-quarter earnings season begins in earnest next week, analysts saw the day’s losses as an isolated occurrence rather than a halt to the January rally.

“I think it’s relatively healthy. Nothing goes straight up. We know that,” said Joseph Keating, chief investment officer at First American Asset Management. “There needs to be a little consolidation before you can go higher.”

In other market highlights:

* Brokerage downgrades of Coca-Cola and JPMorgan Chase weighed on the Dow. Coca-Cola lost 23 cents to $41.44 after Goldman Sachs lowered its rating on the beverage maker to “in-line” from “outperform” on the belief that 2006 won’t be a breakout year for the company.

And Piper Jaffray cut JPMorgan Chase to “market perform” from “outperform,” saying the financial services company could see business slow down this year. JPMorgan Chase slid 75 cents to $39.95.

* GM declined 90 cents to $20.96 on continuing worries that the auto giant might cut its dividend. The stock has fallen the last three days after surging 15% to start the year. American Axle, which gets about 80% of its revenue from GM, fell $1.45 to $18.40 after saying 2005 net income was less than expected and forecasting that profit this year would fall short of estimates.

BorgWarner, the biggest maker of automatic-transmission parts, fell $2.30 to $56 after saying net income this year would be as much as $263 million, lower than some estimates.

* Energy stocks retreated after the pullback in oil and helped drag the broader market lower. Exxon Mobil fell 63 cents to $59.64. Halliburton, the oilfield-services contractor, lost $1.12 to $68.97.

* Network Appliance staged the biggest rally in the S&P; 500 on speculation that the maker of computers that store and distribute data might be bought by IBM. Its shares climbed $2.23 to $32.67. IBM fell 60 cents to $83.57.