US stocks: Blue chips rise, Nasdaq falls

NEW YORK - US blue-chip stocks rose today after upbeat earnings reports, but sharply pared gains late in the day after a Federal Reserve official said further interest-rate increases may be needed.

The Nasdaq ended lower among broad tech weakness.

Shares of Whole Foods Market fell 9.4 per cent to $65.27 and ranked among the Nasdaq's leading net losers. The top US natural and organic foods retailer late on Wednesday posted a quarterly profit just shy of Wall Street expectations.

The stock of American International Group rose 1.1 per cent to $67.12 on the New York Stock Exchange and was one of the Dow's top gainers after the insurer said it will pay about $1.64 billion to settle charges relating to accounting, financial reporting and brokerage practices.

The Dow Jones industrial average was up 24.73 points, or 0.23 per cent, at 10,883.35. The Standard & Poor's 500 Index was down 1.87 points, or 0.15 per cent, at 1,263.78. The Nasdaq Composite Index was down 11.11 points, or 0.49 per cent, at 2,255.87.

Early in Thursday's session, health insurer Aetna posted a 41 per cent rise in quarterly profit and raised its full-year profit outlook, while hotel chain Marriott International Inc. said higher room rates pushed quarterly profit up 25 per cent.

Shares of Aetna climbed 3.3 per cent, or $3.15, to $99.27 on the NYSE, while Marriott rose 2.3 per cent, or $1.53, to $67.64, also on the NYSE.

After midday, Chicago Federal Reserve Bank President Michael Moskow said US interest rates are at a neutral level but further increases, even preemptive ones, may be needed, depending on how inflation develops.

Weighing on stocks were comments by "Moskow, talking about more rate hikes," said Peter Boockvar, equity strategist at Miller Tabak & Co.

Moskow, who is not a voting member of the policy-setting Federal Open Market Committee this year, said anchoring inflationary expectations "sometimes requires preemptive policy tightening before actual inflation numbers start to rise."

The FOMC has raised interest rates by a quarter percentage point at 14 consecutive meetings, pushing the fed funds rate to 4.5 per cent from a low of 1.0 per cent starting in June 2004.

"The market's reacting positively to those (earnings) numbers, and we're kind of getting toward the end of earnings season so there aren't a lot of negative surprises left," said John O'Brien, head of sales trading at KeyBanc Capital.

Results of the first auction of 30-year bonds in more than four years were mixed.

But the softer-than-expected overall demand for the 30-year US Treasury Bond auction may be a harbinger of higher bond yields to come, according to Anthony Chan, managing director and senior economist at JP Morgan Asset Management in New York.

Shares of computer services company Electronic Data Systems Corp. (EDS.N: Quote, Profile, Research) rose 0.8 per cent, or 20 cents, to $25.71 after the company late Wednesday reported higher quarterly net profit and revenue.

- REUTERS