Wall Street rattled by surge in bond yields

NEW YORK » A surge in Treasury yields rattled Wall Street yesterday, forcing stocks to give up early gains and drive down the Dow Jones industrial average more than 140 points.

The 10-year Treasury note's yield soared to 5.15 percent late yesterday from 5.09 percent late Tuesday, reigniting worries among stock investors that high rates could thwart corporate deal-making and further injure the limping housing market.

The stock market started reacting violently to Treasury yields two weeks ago when the 10-year yield surged past 5 percent for the first time since last summer. Wall Street had traded more mildly in recent days as yields retreated from last week's peak of nearly 5.30 percent, but yesterday's yield advance stoked fears that they could resume their climb.

"People are watching this 10-year, and it looks like it might want to go back to 5.25," said Todd Leone, managing director of equity trading at Cowen & Co. Until last week, the 10-year Treasury yield had not traded consistently above 5.25 percent since 2002.

Home Depot's $22.5 billion buyback yesterday initially lent some support to the market, as did stronger-than-expected quarterly earnings from Morgan Stanley and a retreat in oil prices. But the market eventually caved, after investors decided the positive news wasn't enough to warrant a return to record territory.

Troubles at two of Bear Stearns Cos.' hedge funds also weighed on the markets, especially financial firms: Bear Stearns, JPMorgan Chase & Co. and Merrill Lynch & Co. all fell more than 2 percent.

The Dow fell 146.00, or 1.07 percent, to 13,489.42, after bobbing in and out of positive and negative territory earlier in the day.

Broader stock indicators also tumbled. The Standard & Poor's 500 index declined 20.86, or 1.36 percent, to 1,512.84, and the Nasdaq composite index fell 26.80, or 1.02 percent, to 2,599.96.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude oil futures dipped 91 cents to $68.19 a barrel on the New York Mercantile Exchange, and gasoline futures also retreated.

The government said yesterday in its weekly inventory report that crude oil stockpiles rose 6.9 million barrels last week and gasoline stockpiles rose 1.8 million barrels.

Declining issues outnumbered advancers by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 3.22 billion shares, up from 2.80 billion Tuesday.

The Russell 2000 index of smaller companies fell 12.16, or 1.43 percent, to 836.18.

Home Depot, one of the 30 Dow components, rose $1.76, or 4.6 percent, to $40.03 after announcing it will buy back more than a quarter of its shares and sell its Home Depot Supply business to a group of private equity firms for $10.3 billion.

Another positive piece of news was FedEx Corp.'s report that its fiscal fourth-quarter profit rose 7 percent, boosted by an 8 percent increase in revenue and higher package volumes. FedEx rose $1.74 to $109.80.

Morgan Stanley also posted a strong rise in quarterly profit, but the investment bank turned lower by 48 cents to $87.32 as rest of the financial sector wilted.