NEW YORK – Interest rate concerns stifled Wall Street's attempt to extend its rally Tuesday, even as the market drew support from upbeat reports on factory orders, housing demand and consumer confidence.
The Dow Jones industrial average lost 2.56, or 0.02 percent, to 10,888.16, after gaining almost 70 points early in the session. Broader stock indicators finished mixed. The S&P 500 was up 0.02 at 1,257.48, while the Nasdaq fell 6.66, or 0.3 percent, to 2,232.71.
Positive economic data stoked the market at the opening, but those gains were limited by a bond selloff as traders grew worried that a strengthening economy would give the Federal Reserve reason to continue its rate-tightening campaign.
"I think the picture that's emerging is that the economy is doing pretty well, and that energy prices have rolled over sooner than expected," said Robert Tipp, chief investment strategist for Prudential Fixed Income. "We're basically not seeing the slowdown people were looking for. They're hoping the Fed will stop the rate-hike cycle sooner."
On Monday, the market ended a seven-day winning streak amid a five-week rally that has carried the Standard & Poor's 500 and the Nasdaq composite indexes to four-year highs. But many analysts say the market is overbought and needed a break following November's gains.
Signs of strong economic growth in Tuesday's reports sent bonds lower, with the yield on the 10-year Treasury note climbing to 4.48 percent from 4.41 percent late Monday.
Tipp added that falling energy prices — near their lowest levels since summer — could contribute to the narrowing gap between yields on short- and long-term bonds. As energy costs decline, inflation could level off or slow, and higher interest rates would aid a flattening yield curve, he said.
"The reason the market would be vulnerable is because it had embraced a notion that the Fed would raise rates a few more times and then stop," Tipp said. When the Fed released the minutes from its latest meeting last week, short-term rates were slightly ahead of long-term yields, and "that doesn't leave a lot of room for error," he said. Lower yields on long-term bonds would cause a heavy swing into short-term bonds.
The U.S. dollar was mixed against other major currencies. Gold prices gained in Europe, and hit 18-year highs in Asian trading, passing a milestone level of $500 an ounce amid growing interest in the metal as a monetary hedge.
Crude futures turned lower as mild weather pervaded the Northeast, although temperatures are expected to plunge later this week. A barrel of light crude dropped 86 cents to settle at $56.50 on the New York Mercantile Exchange.
Tuesday's government reports offered encouraging signs about the economy. The Commerce Department said orders for big-ticket manufactured goods grew 3.4 percent in October, with increased demand for military aircraft and parts accounting for more than half of the $7.1 billion gain.
The department also reported new home sales grew 16.5 percent to 1.42 million in October, beating forecasts for 1.2 million and a previous July record of 1.35 million. A recovery in the western housing market led the growth, the department said.
Meanwhile, the Conference Board said its November consumer confidence index rose 13.7 points to 98.9, besting economists' forecast for a reading of 90.
Homebuilding stocks fluctuated despite the strong housing data, with Pulte Homes Inc. (PHI) up 30 cents at $41.85 and Centex Corp. (CTX) adding 4 cents to $72.70, while D.R. Horton Inc. fell 7 cents to $35.50 and Lennar Corp. lost 21 cents at $57.44.
Preliminary reports on online holiday sales carried Internet retailers higher in early trading, but shares descended amid profit taking. A rating downgrade on Google Inc. (GOOG) also hurt the tech sector, with Google falling $19.94 to $403.54. Yahoo Inc. (YHOO) was down 92 cents at $40.19, while Amazon.com Inc. (AMZN) rose 20 cents to $48.55.
Calpine Corp. (CPN) fell 71 cents to 54 cents a share after the power producer said its chief executive and founder has left the company, along with its chief financial officer. The leadership change comes as concerns about Calpine's liquidity and ability to avoid bankruptcy deepened in the wake of a recent negative court ruling.
Anheuser-Busch Cos. (BUD) rose 69 cents to $44.70 after saying it still expects full-year earnings to decline by 10 percent to 11 percent, as cost pressures cut into the company's profits. But Anheuser-Busch added that it expects profit to start growing again in 2006.
DuPont Co. (DD) has settled federal allegations that it hid information about the dangers of a toxic chemical used to manufacture its popular Teflon coating, according to The Charleston Gazette. The company could face civil fines of more than $300 million, and has set aside $15 million to cover legal costs. DuPont added 32 cents to $43.43.
Advancing issues outpaced decliners by 19 to 14 on the New York Stock Exchange, where volume of 1.61 billion shares topped the 1.5 billion shares changing hands at the same point Monday.
The Russell 2000 index of smaller companies rose 2.19, or 0.33 percent, to 673.69.
Overseas, Japan's Nikkei stock average fell 0.40 percent. Britain's FTSE 100 added 0.25 percent, Germany's DAX index gained 0.44 percent, and France's CAC-40 was higher by 0.29 percent.