US stocks: Dow ends up, but rally fades on Fed talk

NEW YORK - US blue-chip stocks ended slightly higher on Tuesday, but the broad market's rally reversed course after a regional Federal Reserve official hinted the central bank is not done raising interest rates.

The remarks by Jack Guynn, president of the Federal Reserve Bank of Atlanta, halted the rally because they countered comments from Federal Reserve Chairman Alan Greenspan, which investors had interpreted to mean that the central bank was near the end of its campaign of interest-rate increases.

"The Fed officials took us on a roller coaster," said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

The Dow Jones industrial average closed up 16.04 points, or 0.15 per cent, at 10,483.07 -- sharply below its session high of 10,578.84.

But the technology-laced Nasdaq Composite Index closed down 8.60 points, or 0.41 per cent, at 2,067.16, after earlier climbing as high as 2,095.96. And the Standard & Poor's 500 Index ended down 0.25 points, or 0.02 per cent, at 1,197.26, after rising as high as 1,208.85.

General Motors Corp. was among the Dow's biggest percentage gainers, rising 1 per cent to US$30.73 after its CEO told shareholders the company will cut at least 25,000 US jobs and close more plants over the next few years.

The Nasdaq was pulled lower by Sears Holdings Corp., down 8.7 per cent at US$141.50. Before the start of trading, Sears posted a US$9 million net loss for its first quarterly result since Kmart acquired Sears to form the nation's third-largest retailer.

"It didn't take much to cause some quick profit-taking among investors today," said Michael Sheldon, chief market strategist at New York brokerage Spencer Clarke.

"Guynn's comments could be seen as leading to a little profit taking. Today is clearly not a disaster, but a little bit disappointing." Investors sold stocks in the afternoon after Guynn repeated a suggestion he made May 25 that the Fed wasn't finished yet with raising interest rates.

Neutral policy

At a luncheon hosted by the Atlanta Society of Financial Analysts, Guynn reiterated that he did not think the Fed had reached a "neutral policy stance" that neither spurs nor curbs growth.

Those remarks wiped out most investor enthusiasm -- and with it, most of the stock indexes' earlier gains -- that had been spurred at the start of trading from comments by the Fed chairman.

Greenspan, speaking via satellite Monday night to a bankers' conference in Beijing, said the narrowing spread between short-term and long-term interest rates -- often a signal that an economic slowdown is on the way -- may not be a sign of trouble at present.

That was enough to spark a rally in stocks until Guynn's comments acted like a splash of cold water in the market's face.

Still, the Dow managed to end the session with a slim gain, after rising 111.8 points to its intraday high.

American Express Co. helped lift the Dow, gaining 1 per cent, or 40 cents, to close at US$34.95 on the New York Stock Exchange. Earlier, American Express said it sees US$945 million in pretax costs through 2008 to spin off its personal finance advisory unit.

But McDonald's Corp. fell 2.8 per cent, or 84 cents, to US$29.57 on the NYSE and helped limit the Dow's gains. Earlier, the fast-food company said the head of European business, Russ Smyth, a 21-year veteran, was leaving.

Monsanto Co., the seed and chemical company, rose almost 5 per cent, or US$2.83, to US$61.63 after it raised its outlook for quarterly operating earnings and unveiled a deal to bring a former chemicals affiliate out of bankruptcy.

Monsanto was the S&P 500's biggest percentage gainer.

Exxon Mobil Corp., another Dow component, fell 0.3 per cent, or 15 cents, to US$57.45, after a drop in US oil futures prices for the second straight day.

Crude for July delivery fell 73 cents, or 1.3 per cent, to settle at US$53.76 a barrel on the New York Mercantile Exchange as traders weighed forecasts for another increase in already hefty domestic crude oil inventories. The inventory data will be released Wednesday morning.

Trading was active, with 1.45 billion shares changing hands on the New York Stock Exchange, just below the 1.46 billion daily average for last year. About 1.89 billion shares traded on Nasdaq, just above last year's 1.81 billion daily average.

The number of shares that rose exceeded the number that fell, with roughly nine stocks advancing for every seven that fell on the NYSE.

On Nasdaq, decliners outnumbered advancers by a ratio of about 8 to 7.

- REUTERS