NEW YORK -- Stocks resumed a downward lurch today as continued concerns about interest rates and inflation put the brakes on yesterday's rally.
Dow slumps 235
Nasdaq ends off only 8
despite more inflation fears
The Dow Jones industrial average sank 235.23 points, a 2.2 percent loss, at 10,466.93. It was the ninth-worst point drop ever, and the steepest since Sept. 30, 1998, when the blue-chip index fell 237.20.
Broader stock indicators were all lower, although the Nasdaq composite index, led by slim gains from Microsoft Corp. and Intel Corp., finished with only a slight loss.
Today's Dow plunge made yesterday's 171.07-point gain seem like a distant memory. Just this week, the Dow has tumbled 362.35 points, or by 3.3 percent.
Some of the selling today came from investors cashing in on yesterday's rally in advance of the Memorial Day weekend. But the strongest factor, analysts said, was the continuing fear that inflation will prompt the Federal Reserve to raise interest rates. Higher interest rates can crimp corporate profits as it becomes more expensive for companies to borrow money.
New government figures on the economy today kept the market off balance. The Commerce Department said the U.S. economy grew at a robust annual rate of 4.1 percent in the first quarter.
That depressed bond prices. The 30-year bond fell point, or $6.25 per $1,000 security; its yield rose 5 basis points to 5.85 percent, close to its highest level in a year.
Yet the Commerce report also revealed news that could have heartened the market. An inflation gauge tied to the report rose a modest 1.1 percent, and corporate profits showed a big rebound in the first three months of this year. Profits rose at an annual rate of $31.8 billion after having fallen at a rate of $5.3 billion in the fourth quarter of 1998.
But David Orr, chief economist at First Union Capital Markets, pointed out that the fourth quarter included $13.5 billion in settlements by tobacco companies. Without those crushing payments, the increase in profits would have been much more modest.
"There hasn't been any catalyst to bring people into the marketplace," said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee. The upcoming three-day holiday may also discourage money managers from taking big new positions, Berman said.
IBM Corp. fell today, following a 2-for-1 stock split that took effect after the close of trading yesterday. Some analysts also blamed persistent worries that computer makers will see their profit margins shrink as they cut prices to compete.
Analysts attributed the Nasdaq's stronger performance to bargain-hunting following a sharp selloff of Internet stocks early this week.
"Those stocks had been already been beaten up pretty badly, so today, they're resisting the decline of the rest of the market," said Robert Robbins, senior vice president and market strategist at Robinson-Humphrey Co. of Atlanta.
The Standard & Poor's 500 fell 23.35, or 1.8 percent, to 1,281.41, and the technology-heavy Nasdaq composite index fell 8.03 to close at 2,419.15.
Declining issues outnumbered advancers by an 9-to-5 margin on the New York Stock Exchange, with 1,898 down, 1,040 up and 566 unchanged. NYSE volume totaled 813.50 million shares vs. 876.74 million yesterday.
The NYSE composite index fell 10.82 to 614.02; the American Stock Exchange composite index dropped 8.27 to 774.39; and the Russell 2000 index of smaller companies fell 2.49 to 432.92.