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NEW YORK >> Investors shaken by a terrorist attack overseas and a turnaround in interest rates sent stocks sharply lower yesterday, propelling the Dow Jones industrials down nearly 150 points in their worst day in 2 1/2 months.
Downbeat outlooks from Gillette and Costco added to the market's gloom, but analysts said much of the selling was due to a growing realization that interest rates are again climbing.
"Portfolio managers have decided to back away. They have lost their nerve," said Hugh Johnson, chief investment officer at First Albany. "They are asking: 'Will the rise in interest rates impact consumer spending and business spending?' It may very well."
Analysts also attributed yesterday's losses to a powerful car bomb explosion outside the Marriott hotel in downtown Jakarta.
"To some extent, the markets continue to be shocked by acts of terrorism. Of course, we got another one today," Johnson said.
Declining issues outnumbered advancers slightly more than 2 to 1 on the New York Stock Exchange. Consolidated volume was light at 1.64 billion shares, just ahead of Monday's 1.62 billion.
The Dow closed down 149.72, or 1.6 percent, at 9,036.32, its biggest one-day point loss since May 19, when it shed 185.58.
The broader market also had steep losses. The Nasdaq composite index dropped 40.56, or 2.4 percent, to 1,673.50. The Standard & Poor's 500 index fell 17.36, or 1.8 percent, to 965.46. The Russell 2000 index fell 7.32, or 1.6 percent, to 460.45.
"It really has to do with the fear that a lot of people have that the rise in interest rates is going to be a detriment to economic momentum," said Ned Riley, chief investment strategist at State Street Global Advisors.
Since the middle of June, the 10-year Treasury note has risen to about 4.4 percent from just over 3.0 percent, due largely to signals that the economy is rebounding and the Federal Reserve is being less aggressive.
The price of the Treasury's 10-year note closed down 15/16 point yesterday, while its yield rose to 4.41 percent from 4.28 percent Monday. Two-year Treasury notes fell 9/32 point and yielded 1.82 percent, up from 1.69 percent Monday.
In economic news, the Institute for Supply Management reported that its non-manufac- turing index for July rose to 65.1 from 60.6 in June. Economists' forecast called for a reading of 56.0. A reading above 50 indicates growth in economic activity, while a reading below 50 points to contraction.
Costco Wholesale dropped $6.90, or 18.5 percent, to $30.06 after cutting its earnings estimates for the rest of the year. The discount retailer cited higher health care and workers' compensation cost along with greater operating expenses in the first eight weeks of the current quarter.
Gillette declined 16 cents to $30.21 following bearish comments from the company -- the consumer products maker said it was losing market share in the razor blade business to Schick and that could cut into 2003 and 2004 earnings. That news eclipsed second-quarter earnings that beat analysts' expectations by 4 cents a share.
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