Chip sales help boost tech stocks

NEW YORK » Stocks turned in a mixed performance yesterday after a report showed that the nation's manufacturing sector is expanding but facing even higher costs, triggering worries about inflation and rising interest rates.

The market made a brief advance in early trading, lifted by lower oil and a pair of multibillion-dollar acquisitions, but retraced its steps as investors mulled the latest industrial data from the Institute of Supply Management. Meanwhile, news that global computer chip sales grew 1.7 percent in August bolstered gains in technology stocks.

While the ISM's index was better than expected and signaled that manufacturing has so far withstood the effects of hurricanes Katrina and Rita, companies reported another steep rise in raw materials prices last month amid record energy costs. Price inflation is among the top reasons for the Federal Reserve to keep to its policy of raising interest rates.

The hurricanes are "not only creating shortages near term, but also will ultimately create a kind of vortex of demand that will be concentrated in the fourth and first quarters," said Jack Ablin, chief investment officer at Harris Private Bank. "There's been concern that that will create inflation pressure for building materials.

"Any observer who thought there was light at the end of the Fed-tightening tunnel will be deeply disappointed," he added, suggesting the Fed will hike interest rates again when it meets in November.

The Dow Jones industrial average dropped 33.22, or 0.31 percent, to 10,535.48.

Broader stock indicators ended mixed. The Standard & Poor's 500 index was down 2.11, or 0.17 percent, at 1,226.70, while the Nasdaq composite index gained 3.74, or 0.17 percent, to 2,155.43.

Bonds extended their slide, with the yield on the 10-year Treasury note climbing to 4.39 percent from 4.33 percent on Friday.

The Dow quickly slid into negative territory although ISM said its September manufacturing index surged to 59.4, the best reading in a year. Economists were looking for the index to come in at 52, down slightly from 53.6 in August.

Wall Street enjoyed some relief as crude oil followed Friday's profit-taking session with a second day of declines, although worries remain about heating oil shortages this winter while Gulf Coast refineries recover from the hurricanes. A barrel of light crude fell 77 cents to $65.47 on the New York Mercantile Exchange.

In corporate news, NRG Energy Inc. agreed to buy privately held power generator Texas Genco LLC for $4 billion in cash and $1.8 million in stock.