Stocks Falter as Bond Yields Head Back Above 6.50%

Stocks ended broadly but modestly lower on Thursday, as the bond market’s jitters finally got the best of Wall Street.

The Dow Jones industrials lost 71.31 points, or 0.9%, to 8,188.00, while most broader indexes slipped by lesser percentage amounts.

The Nasdaq composite dipped 6.26 points, or 0.4%, to 1,624.18.

Stocks were hurt by a rough session in the bond market.

Traders said bond dealers struggled to find buyers for the 30-year Treasury bonds auctioned Thursday. The bonds, which sold at an average yield of 6.45%, were, as usual, bought mostly by dealers, who then expected to resell them to investors.

But the 6.45% yield proved too low for many potential investors, forcing yields to rise in the open market. By the close of trading, the 30-year T-bond yield stood at 6.53%, up from 6.48% on Wednesday and the highest since July 21.

“Yields went above 6.50%, and that was a perfect excuse for some profit-taking in the market,” said Scott Bleier, chief investment strategist at Prime Charter Ltd.

Traders said some bond investors are increasingly fearful that upcoming economic reports will point to renewed strength in the economy, which could put upward pressure on interest rates. Just last week, long-term yields were at 18-month lows--before the surprisingly robust July employment report last Friday.

“We may be looking at stronger growth in the second half of the year,” said David Capurro, who manages about $520 million in bonds for Franklin Resources in San Mateo, Calif.

New evidence of the economy’s healthy tone came as some retailers reported generally solid sales for July.

Federal Reserve Board policymakers are to meet on Aug. 19 to weigh their next move on rates. The central bank raised short-term rates in March--the first increase in more than two years--in a bid to cool the economy, but it has held rates steady since.

Meanwhile, on Wall Street on Thursday profit-takers took down some of the blue-chip stocks that have led this year’s stunning advance--and which could be most vulnerable if the market were to enter a “correction” phase.

Among the market highlights:

* Blue-chip stars losing altitude included Coca-Cola, which fell $1.56 to $66.56, and now is off 8% from its recent record high.

Also falling Thursday were Procter & Gamble, down $2.13 to $145.63; Gillette, down $2.75 to $94.50 (it now is down 11% from its recent peak); and Merck, down $2.25 to $99.75.

* Health-maintenance organization stocks tumbled after United Healthcare reported disappointing second-quarter earnings of 57 cents a share, up from 43 cents a year ago. Higher medical costs overshadowed strong enrollment growth and higher premiums, analysts said. United’s shares sank $7.31 to $50.75.

Aetna, which earlier this week also reported earnings that left analysts disappointed, dropped $5.25 to $96.75.

And PacifiCare, which had previously warned about weaker-than-expected earnings, reported its numbers on Thursday. It earned 39 cents a share, down from operating earnings of $1.15 a share a year ago. The firm called the latest results “unacceptable, and disappointing to shareholders.” The company’s class A shares dipped 50 cents to $64.38.

* Financial stocks were broadly lower, taking their cue from bonds. Wells Fargo lost $3 to $266, First Chicago/NBD sank $2.19 to $76.13, Mellon dropped $1.63 to $48.63 and Merrill Lynch lost $2 to $66.31.

* In the tech sector, Apple shares continued to rise in the wake of Wednesday’s surprise announcement that Microsoft would take a stake in the firm. Apple jumped $2.88 to $29.19; Microsoft added 50 cents to $143.94.

Other tech issues were mixed. Compaq gained $3.50 to $62.13 and Western Digital rose $1.75 to $47.50, but Cabletron Systems lost $1.19 to $34.81 and Cadence Design was off $1.63 to $47.13.

Overseas, the Bank of England raised its base rate, the lowest rate at which it lends money to commercial banks, by a quarter percentage point to 7%. But it also indicated that the latest rise may be the last for the time being.

That statement sent British stocks to new highs, with the FTSE-100 index rising 1.2% to 5,086.8. But the pound tumbled on the news to its weakest level since October against the dollar.