Slumping financial shares pulled the stock market mostly lower Monday after Federal Reserve Chairman Ben Bernanke's prediction that interest rates will remain low failed to galvanize investors. Stocks initially rose Monday afternoon after Bernanke said that forces like unemployment and tight credit would hold the economy to "moderate" improvements. He also reaffirmed the Fed's position that interest rates are likely to remain low for an extended period.
But the glow from Bernanke's comments faded by the early afternoon, sending stocks generally lower as investors went back to being cautious about the economy. Dan Deming, a trader with Stutland Equities, said there were simply too few buyers to propel the market much higher. "It just feels like it's drifting," he said. "The market feels tired."
The back-and-forth trading follows a brief spike in stocks Friday, when a strong jobs report for November provided one of the best indications yet that the economy is strengthening. The Labor Department said employers cut fewer jobs last month than at any time since the recession began at the end of 2007, while the unemployment rate dropped to 10% from a 26-year high of 10.2%.
Stocks had jumped after Friday's employment report but later gave up most of those gains as traders started to worry that the signs of recovery in the economy would lead to higher interest rates. Some analysts say the market overreacted in predicting that rates were due to rise, however.
"We have a slowly recovering economy," said Robert MacIntosh, chief economist at Eaton Vance Management. "I don't think you need to worry about the Fed changing their mind and raising rates anytime soon."
In late afternoon trading, the Dow Jones industrial average rose 1.51, or less than 0.1%, to 10,390.41. On Friday, the Dow ended with a gain of 23 points after having been up as much as 151 points following the unemployment report.
The broader Standard & Poor's 500 index fell 2.85, or 0.3%, to 1,103.13, while the Nasdaq composite index fell 7.04, or 0.3%, to 2,187.31.
The dollar fell as against other major currencies as Bernanke spoke to the Economic Club of Washington, but those declines moderated in the afternoon, leaving the ICE Futures US dollar index down 0.2 percent.
Gold fell but ended well off its worst level. Oil dropped $1.54 to settle at $73.93 a barrel on the New York Mercantile Exchange.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.44% from 3.48% late Friday.
Low interest rates and the resulting slide in the dollar have helped fuel the stock market's advance since March. The weak dollar has encouraged investors to buy stocks, commodities and other higher-yielding assets. If the Fed were to raise rates, that would be a good sign that the economy is strengthening. However, investors could curb their buying of stocks and look for ways to make more money elsewhere as rates rise.
A stronger dollar could also hurt companies that produce commodities and have large international operations. Those companies make more money when the dollar is weak and overseas sales are translated into greenbacks. A weaker dollar also makes their goods and services cheaper for foreign buyers.
Stocks are likely to drift as investors await more details from the Fed, which will host its last policy meeting of the year next week.
Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles, said stocks will still climb when the Fed raises rates because the move will be such a strong sign of an improving economy that investors will be willing to take on more risk.
Higgins doesn't expect rates will go up soon, however, because the economy still needs supports to build a sustained recovery after a long period of excess debt and too little savings.
"We're starting to pay for those past deeds and the government is providing us with a little bit of aspirin to help," he said.
In other trading, the Russell 2000 index of smaller companies fell 1.67, or 0.3%, to 601.12.
Among financial stocks, Bank of America Corp. fell 42 cents, or 2.6%, to $15.86, while PNC Financial Services Group Inc. dropped $1.79, or 3.4%, to $51.68.
Falling stocks narrowly outpaced those that rose on the New York Stock Exchange, where volume came to 752.8 million shares compared with 1.1 billion shares traded at the same point Friday.
Overseas, Britain's FTSE 100 fell 0.2%, Germany's DAX index fell 0.6%, and France's CAC-40 fell 0.2 percent. Japan's Nikkei stock average rose 1.5%.
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