Interest rates keep falling as investor view of economy dims further; stocks edge lower

NEW YORK (AP) — A darkening view of the economy sent bond market interest rates to their lowest level in 14 months and kept many investors out of the stock market.

The yield on the 10-year Treasury note, considered a benchmark because it's used to set rates on consumer loans including mortgages, fell to 3.03 percent Monday, its lowest point since late April 2009. At that time, the markets were still recovering from the devastation of the financial crisis and collapse in stocks.

Investors felt safer making their bets in the bond market and many avoided any kind of stock trades. All the major stock indexes fell by single digits. The New York Stock Exchange traded less than a billion shares on its selling floor, a number that's more likely to be seen in August or late December than in June.

Treasurys benefited from investors' growing gloom. The latest bit of bad economic news came from the Commerce Department, which said consumers saved more than they spent last month. The government said consumer spending rose 0.2 percent last month, just above the 0.1 percent growth forecast by economists polled by Thomson Reuters. However, personal income rose 0.4 percent.

Consumer spending remains a sticking point for the economy, which won't have a strong recovery until consumers fell more confident about buying again. With the recovery looking more uncertain, many investors are choosing to go with bonds because they are considered stable. And investors are willing to put up with bonds' lower returns simply because they are safer than stocks.

The 10-year note's 3.03 percent yield compared with 3.11 percent late Friday. It hasn't been this low since April 28 of last year.

Investors are also growing anxious ahead of the release of the government's June employment report on Friday. The May report was troubling because it showed that private employers are hiring few workers. That hurts the economy since consumers aren't likely to spend if they aren't working or are worried about losing their jobs.

Burt White, chief investment officer at LPL Financial in Boston, said the coming weeks will be important for investors because of the jobs report on Friday and the announcement of earnings for the April-June quarter. White said stronger profits could convince businesses to start investing more. That, economists hope, will lead to more hiring.

"Businesses have to commit to this recovery," White said.

The Dow Jones industrial average fell 5.29, or 0.1 percent, to 10,138.52 after being up 58 points.

The broader Standard & Poor's 500 index fell 2.19, or 0.2 percent, to 1,074.57. The Nasdaq composite index fell 2.83, or 0.1 percent, to 2,220.65.

Commodities, seen as risky investments along with stocks also fell, but their drop was also influenced by a stronger dollar. A rise in the dollar made commodities more expensive for foreign buyers. Crude oil fell 61 cents to $78.25 per barrel on the New York Mercantile Exchange, while gold fell.

The drop in commodities sent raw materials producers falling. Exxon Mobil Corp. 63 cents, or 1.1 percent, to $58.47, while gold producer Freeport-McMoRan fell $1.91, or 2.9 percent, to $64.66.

Meanwhile, tobacco stocks rose after the Supreme Court said it wouldn't take up a case between the government and tobacco makers. The decision prevents the government from getting billions of dollars from makers of cigarettes for anti-smoking campaigns. Reynolds American Inc. rose $2.08, or 4.1 percent, to $53.45, and Altria Group Inc., parent of Philip Morris USA, rose 64 cents, or 3.3 percent, to $20.34.

A separate decision from the court signaled that gun control laws in Chicago and a nearby suburb likely would be struck down by a lower court. That gave a boost to shares of gun makers. Smith & Wesson rose 23 cents, or 5.6 percent, to $4.33, while Sturm, Ruger & Co. climbed 33 cents, or 2.2 percent, to $15.39.

Retailers were hurt by the consumer spending report. Macy's Inc. lost 20 cents, or 1.1 percent, to $18.82, and Amazon.com Inc. fell $3.20, or 2.6 percent, to $117.80. Home Depot Inc. fell 61 cents, or 2 percent, to $29.59.

Eight stocks fell for every seven that rose on the NYSE. Volume on the exchange floor came to 942 million shares. Consolidated volume, which includes shares traded on other exchanges, totaled 3.94 billion, also a very low figure.

The Russell 2000 index of smaller companies fell 3.57, or 0.6 percent, to 641.54.

Britain's FTSE 100 rose 0.5 percent, Germany's DAX index gained 1.4 percent, and France's CAC-40 rose 1.6 percent. Japan's Nikkei stock average fell 0.5 percent.