Oil prices continue
to hamper stocks

NEW YORK >> The bears returned to Wall Street yesterday, sending stocks lower as oil prices rose, a downbeat outlook from Cisco Systems Inc. weighed on technology shares and investors started having second thoughts about this week's interest rate hike.

A sales warning from National Semiconductor Corp., which was downgraded by brokerage firm Smith Barney, added to the pressure on the technology sector. The sell-off erased much of the previous session's gains on the Nasdaq composite index and led the rest of the market lower, although blue chips regained most of their lost ground in late bargain-hunting.

Volatility in oil prices, spurred by concerns about tightening supply, contributed to the declines. Crude futures fell after Saudi Arabia signaled it could raise its production output if necessary, but resumed their climb later in the session, closing up 28 cents at $44.80 -- just 4 cents off their record high.

"We keep coming back to the same concern: crude oil prices," said Ken Tower, chief market strategist for Schwab's CyberTrader. "Until there is some sign that crude oil is starting to come down ... and stabilize, I think everybody is going to remain very uncertain about how much of a slow down in growth we will have."

The Dow Jones industrial average closed down 6.35, or 0.1 percent, at 9,938.32, making a strong recovery after falling more than 100 points earlier in the session.

The broader gauges also rebounded somewhat, but remained in negative range. The tech-dominated Nasdaq fell 26.28, or 1.4 percent, to 1,782.42. The Standard & Poor's 500 index shed 3.25, or 0.3 percent, to 1,075.79.

The price of the benchmark 10-year Treasury note rose 316 point yesterday and its yield, which moves in the opposite direction, fell to 4.27 percent from 4.29 percent late Tuesday. The 2-year note gained 116 point to yield 2.50 percent, down from 2.53 percent.

Investors had a muted reaction to Tuesday's much-anticipated rate hike, which brings the federal funds rate to 1.5 percent, focusing instead on the Federal Reserve's upbeat assessment of the economy. The Fed's Open Market Committee blamed much of the recent slowdown on high energy prices, and said the economy was poised to improve.

The suggestion that there are more rate hikes ahead gave Wall Street some pause, however. Most analysts agree the market's underlying fundamentals remain strong, but interest rates are just one item on a long list of unknowns worrying investors.

"We feel good about the broader economy, on the back of the Fed release. ... And corporate earnings are all solid," said David Hegarty, head trader at Commerzbank Securities. "But there are a number of things that are just keeping the pressure on us: energy, terrorism, increasing interest rates and a tight presidential race."