Signs of growth drive down bonds

NEW YORK » Interest rate concerns stifled Wall Street's attempt to extend its rally yesterday, even as the market drew support from upbeat reports on factory orders, housing demand and consumer confidence.

Positive economic data stoked the market at the opening, but those gains were limited by a bond selloff as traders grew worried that a strengthening economy would give the Federal Reserve reason to continue its rate-tightening campaign.

"I think the picture that's emerging is that the economy is doing pretty well, and that energy prices have rolled over sooner than expected," said Robert Tipp, chief investment strategist for Prudential Fixed Income. "We're basically not seeing the slowdown people were looking for. They're hoping the Fed will stop the rate-hike cycle sooner."

On Monday, the market ended a seven-day winning streak amid a five-week rally that has carried the Standard & Poor's 500 and the Nasdaq composite indexes to four-year highs. But many analysts say the market is overbought and needed a break following November's gains.

At the close of trading, the Dow Jones industrial average lost 2.56, or 0.02 percent, to 10,888.16, after gaining almost 70 points early in the session.

Broader stock indicators finished mixed. The S&P 500 was up 0.02 at 1,257.48, while the Nasdaq fell 6.66, or 0.3 percent, to 2,232.71.

Signs of strong economic growth in yesterday's reports sent bonds lower, with the yield on the 10-year Treasury note climbing to 4.48 percent from 4.41 percent late Monday.

Tipp added that falling energy prices -- near their lowest levels since summer -- could contribute to the narrowing gap between yields on short- and long-term bonds. As energy costs decline, inflation could level off or slow, and higher interest rates would aid a flattening yield curve, he said.

The U.S. dollar was mixed against other major currencies. Gold prices gained in Europe, and hit 18-year highs in Asian trading, passing a milestone level of $500 an ounce amid growing interest in the metal as a monetary hedge.

Crude futures turned lower as mild weather pervaded the Northeast, although temperatures are expected to plunge later this week. A barrel of light crude dropped 86 cents to settle at $56.50 on the New York Mercantile Exchange.

The Commerce Department said orders for big-ticket manufactured goods grew 3.4 percent in October, with increased demand for military aircraft and parts accounting for more than half of the $7.1 billion gain.