Stocks Fall Amid Rate Jitters

Stocks closed mixed in a lackluster session Friday as nagging uncertainty about the Federal Reserve's decision next week about interest rates weighed on Wall Street despite strong home sales and consumer sentiment data.

The Dow Jones industrial average (search) fell 71.97 points, or 0.69 percent, to 10,371.84. The Standard & Poor's 500 Index (search) fell 6.33 points, or 0.55 percent, to 1,134.32. The technology-laced Nasdaq Composite Index (search) rose 9.90 points, or 0.49 percent, to 2,025.47.

For the week, the Nasdaq rose 2 percent, but the Dow fell 0.4 percent and the S&P 500 fell 0.1 percent.

About 1.8 billion shares changed hands on the New York Stock Exchange and 1.9 billion shares were traded on Nasdaq.

A report showing the U.S. economy grew at an unexpectedly slow pace in the first quarter of this year surprised Wall Street. But the report was offset by the other upbeat economic news, and many analysts said the 3.9 percent annual rate -- revised from 4.4 percent a month ago -- was still healthy.

Investors are fixated on June 30, hoping the day's events will resolve two of the market's main worries -- the Federal Reserve's decision on interest rates and the U.S. handover of power in Iraq.

"There are a lot of positive factors on the one hand, but also a lot of wild cards out there that are creating some uncertainty," said Ozan Akcin, chief market strategist, Puglisi & Co. "Net-net what you get is a flat trading range."

Economic reports were mixed. The final version of the University of Michigan (search) June consumer sentiment index edged up further to 95.6, having jumped to 95.2 in the preliminary release from 90.2 in May.

Existing home sales for May climbed 2.6 percent to a record seasonally adjusted annual rate of 6.80 million units, handily beating forecasts.

Investors have been on edge ahead of the Fed's decision on interest rates due at the end of its two-day meeting on Wednesday. The central bank is widely expected to raise rates by a quarter of a percentage point. Analysts said the surprise downward revision to the first-quarter U.S. gross domestic product helped dampen speculation that the Fed might opt for a more aggressive half-point hike.

"I think at this point, a half-point raise is off the table," said Daniel Portanova, managing director at Gartmore Separate Accounts in Irvington, N.Y. "And I think the market will be comfortable with a quarter-point rate hike, especially after seeing this number."

"Nobody wants to screw up their year right now, so we'll wait," said Michael Murphy, managing director at Wachovia Securities. "I'd rather miss the first 5 percent on the upside than be early and be wrong."

Stun gun maker Taser International Inc. (TASR) surged 19 percent, or $6.67 to $42.09. A Morgan Keegan analyst raised second-quarter and 2005 estimates for Taser, saying a consumer version of the X26 Taser gun may soon be sold by a national retailer.

On the downside, Titan Corp. (TTN) slid 22 percent, or $4.12, to $14.53 after it said it was unlikely to reach a plea agreement relating to bribery charges before a June 25 deadline set by Lockheed Martin Corp. (LMT), putting the $1.64 billion merger agreement between the defense companies in jeopardy. Lockheed slipped 14 cents to $51.97.

Pfizer Inc. (PFE) dragged on the blue-chip Dow after it announced it would acquire the rights it doesn't already own to a colorectal cancer drug from Sanofi-Synthelabo for $620 million. Its shares fell 99 cents, or 2.8 percent, to $33.82.

Clothing and sporting goods manufacturer Nike Inc. (NKE) jumped $2.91 to $75.31 after posting a 21 percent rise in quarterly profits and handily beating Wall Street earnings expectations by 5 cents.

Countrywide Financial Corp. (CFC) fell 21 cents to $71.09 after the company board approved a 2-for-1 stock split, to be paid in the form of a stock dividend.

Technology shares, including Ciena (CIEN) and Juniper Networks (JNPR), boosted the Nasdaq as the companies continued to benefit from plans for hefty spending by Sprint Corp. and SBC Communications Inc. Ciena rose 8 percent, or 27 cents, to $3.76. Juniper rose 73 cents to $23.89.

And Paychex Inc. (PAYX), one of the largest U.S. payroll services companies, tumbled 7.6 percent, or $2.77, to $33.92 after it said quarterly earnings fell after it increased a reserve for legal matters at one of its subsidiaries.

Friday's annual reconstitution of Russell's 21 U.S. stock indexes could add to the market's volatility, analysts said. The Russell 2000 is a leading composite of small-cap stocks compiled by the Frank Russell Co. It rose 8.65, or 1.5 percent, to 587.70.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies_ ended the week at 11,073.60, up 39.46 points from last week. A year ago the index was 9,358.47.

Reuters and the Associated Press contributed to this report.