US stocks: Shares fall on rate worry

NEW YORK - US stocks ended lower on Tuesday, buffeted by fears of rising interest rates, a sell-off in the energy sector, including Exxon Mobil Corp., and a drop in the shares of heavy equipment maker Caterpillar Inc.

But after the bell, shares of Amazon.com Inc. climbed about 4 per cent in composite trading after the internet retailer posted its first-quarter earnings and gave a rosy outlook for the full year.

During regular trading, investors worried that stronger-than-expected data on housing and consumer confidence would give the Federal Reserve more ammunition to keep raising interest rates.

The data overshadowed strong earnings from companies, including AT&T Inc., whose stock edged higher.

"Do we have inflation lurking underneath the surface of this economy? I think clearly it is," said Ken Farsalas, portfolio manager at Oberweis Asset Management.

"When you have companies that are having earnings reports as strong as they are, with strong outlooks" and there's "talk of wage inflation and component inflation, people would look around and say maybe the Fed cannot pause at this point." The Dow Jones industrial average was down 53.07 points, or 0.47 per cent, to end at 11,283.25. The Standard & Poor's 500 Index was down 6.37 points, or 0.49 per cent, at 1,301.74. The Nasdaq Composite Index was down 3.08 points, or 0.13 per cent, at 2,330.30.

The S&P 500 registered its third straight day of losses, while the Dow hit its second straight day of decline. The Nasdaq fell for a fourth straight day.

Nervousness about rising rates drove the yield on the benchmark 10-year US Treasury note up to 5.08 per cent -- near levels not seen since May 2002. That prompted investors to sell interest-rate-sensitive bank and financial services companies' shares, including Citigroup Inc. and JPMorgan Chase & Co..

Rising rates can make it harder for banks to make money because it can squeeze their margins and cut loan demand.

Meanwhile, a drop in crude oil prices from last Friday's record above US$75 a barrel hit energy stocks such as Exxon Mobil and ConocoPhillips.

In the financial sector, Citigroup shares fell 1.1 per cent, or 54 cents, to US$47.46, while JPMorgan Chase shares shed 1.1 per cent, or 46 cents, to US$42.22, and insurer American International Group Inc. lost 1 per cent, or 64 cents, to US$63.64 on the New York Stock Exchange. All the stocks are Dow components.

Crude oil prices fell after President George W. Bush suspended deliveries to the US emergency reserve to boost supply in the market, part of several moves to counter near-record prices.

US crude oil for June delivery fell 45 cents to settle at US$72.88 a barrel on the New York Mercantile Exchange, down from Friday's record high of US$75.35.

Exxon Mobil slipped 0.7 per cent, or 46 cents, to US$63.95 on the NYSE, while ConocoPhillips slid 2.3 per cent, or US$1.59, to US$68.25. Those two stocks were among the top drags on the S&P 500.

A sell-off in the shares of heavy machinery maker Caterpillar Inc. contributed to more than a third of the Dow's decline, with the stock off 3.2 per cent, or US$2.45, at US$74.93 amid analysts' doubts about the company's outlook and a rating downgrade.

Data on Tuesday showed consumer confidence rose to a four-year high in April while existing home sales in March gained more than economists had expected, suggesting the Fed will keep raising rates to forestall inflation.

The yield on the benchmark 10-year US Treasury note climbed to 5.08 per cent late Tuesday from 4.99 per cent on Monday. A poorly bid auction of 5-year Treasury securities on Tuesday also helped to push yields higher.

On Nasdaq, shares of Amazon.com fell 0.7 per cent, or 24 cents, to US$35.55 before the online retailer's release of first-quarter earnings.

But after the bell, Amazon's stock rose as high as US$37 in composite trading.

In the regular session, the stock of telephone company AT&T rose after it posted stronger-than-expected profits. Its stock gained 0.3 per cent, or 7 cents, to US$25.60 on the NYSE.

- REUTERS