US stocks: Markets drop as bond yields jump

NEW YORK - US stocks fell on Wednesday as the benchmark bond yield hit the highest level in seven months on reignited concerns about inflation and interest rates, while profit misses by Amazon.com Inc. and Boeing Co. disappointed investors.

The spike in the 10-year Treasury note's yield to 4.61 per cent ahead of next week's Federal Reserve policy meeting weighed on interest-rate-sensitive sectors, including housing and utilities.

Shares of No. 2 commercial jetmaker Boeing fell 2.8 per cent to US$65.10 on the New York Stock Exchange and were the biggest drag on the Dow average, while online retailer Amazon.com's stock fell 13.9 per cent, or US$6.42, to US$39.75 on the Nasdaq.

"Bond yields are trading at their highest in seven months, and that's brought back some inflationary concerns," said Larry Peruzzi, senior equity trader at The Boston Co. Asset Management, a Mellon subsidiary.

The Dow Jones industrial average was down 32.89 points, or 0.32 per cent, to end at 10,344.98. The Standard & Poor's 500 Index was down 5.16 points, or 0.43 per cent, to finish at 1,191.38. The technology-laced Nasdaq Composite Index was down 9.40 points, or 0.45 per cent, to close at 2,100.05.

Boeing posted a higher profit, but its earnings per share excluding one-time items missed analysts' forecasts. Amazon.com reported on Tuesday that quarterly profit soared, but earnings per share were below Wall Street estimates.

Bond yields rose as their prices fell for the third straight day. On Monday, stocks rallied after President George W. Bush nominated White House economic advisor Ben Bernanke to succeed Alan Greenspan as Federal Reserve chairman.

"Obviously, when it comes with the stock market, the economy and everything else, it's an enormously important position, and I think it relieved people to see (Bush) appoint someone who is believed to be the best person for the job," said Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray in Minneapolis.

The fed funds futures market, which closely tracks the direction of US interest rates, is signalling that more rate increases are likely when the Federal Open Market Committee meets on Tuesday, Nov. 1, and again on Dec. 13.

Higher interest rates are negative for stocks because they increase borrowing costs for companies and consumers.

The Standard & Poor's utilities index slipped 1.3 per cent. Utility stocks typically pay above-average dividends to investors.

The Dow Jones index of home builders' shares fell 2.1 per cent.

US mortgage applications fell last week to a six-month low as interest rates on home loans stayed close to their highest level this year, the Mortgage Bankers Association, an industry trade group, said on Wednesday.

Shares of Countrywide Financial Corp. , the largest US mortgage lender, fell 4.1 per cent, or US$1.31, to US$30.30, while shares of KB Homes, one of the biggest US home builders, slipped 1.4 per cent, or 90 cents, to US$64.53, both in NYSE trading.

Flextronics International Ltd. shares sank nearly 24 per cent, or US$2.90, to US$9.20 and also dragged on the Nasdaq, a day after the world's biggest contract electronics manufacturer posted a small net loss. Flextronics also set financial targets below analysts' expectations.

Meanwhile, shares of WellPoint Inc., the largest US health insurer by membership, fell 5.7 per cent, or US$4.37, to US$71.72 on the NYSE after it posted higher profits, but offered a vague forecast for 2006. Wellpoint was among the major drags on the S&P 500.

Shares of ConocoPhillips, the first major US oil company to report third-quarter results, rose 0.6 per cent, or 36 cents, to US$62.80 on the NYSE, after it reported better-than-expected earnings. Earlier, the shares hit a session high at US$65.22.

US crude futures for December delivery fell US$1.78 to settle at US$60.66 a barrel, reversing earlier gains. The turnabout followed a slide in heating oil futures as a rally on a drop in supply fizzled out. US government data showed a drop in distillate inventories in the latest week as demand rose ahead of cold weather in the US Northeast.

Trading was heavy, with 1.83 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.89 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.

The number of stocks declining outpaced those advancing by about 2 to 1 on the NYSE. On Nasdaq, decliners led advancers by about 3 to 2.

- REUTERS