NEW YORK -- U.S. stocks fell yesterday amid concern about rising interest rates and a plunge in Japanese stocks.
The Dow Jones industrial average slumped 23.76, to 3,670.25, while broader market indexes declined for a fourth straight session. The Standard & Poor's 500 Index fell 3.47, to 459.13.
The Nasdaq Combined Composite Index plunged 13.43, to 738.13, closing at its lowest level since Sept. 21. The American Stock Exchange Market Value Index declined 7.10, to 460.88. About 14 common stocks were lower for every three that rose on the New York Stock Exchange.
"There is a pervasive fear that rates are going higher, and that's starting to weigh on the entire stock market," said David Dreman, head of Dreman Value Management L.P., which oversees $2.4 billion.
The yield on the benchmark, 30-year Treasury bond is up more than half a percentage point in the past month as evidence has grown that the economy is strengthening. The yield has climbed to 6.38 percent from an Oct. 15 low of 5.77 percent and now hovers at the highest level since mid-August.
"If rates keep moving up, I think you'll see more and more money come out of the stock market," said Don Hays, investment strategist at Wheat First Butcher & Singer, who expects the Dow industrials to drop 100 points between now and mid-December.
In addition to rising rates, U.S. stocks were hurt by the overnight drop in Japan's Nikkei 225-Stock Index, said Peter Cardillo, research director at Westfalia Investments Inc.
The Nikkei 225 plunged 556.35 points, or 3.1 percent, to 17,384.84 in Tokyo yesterday. The slump was triggered by a bankruptcy announcement from software company TSD and by disappointment that a government panel didn't recommend some specific tax cuts.
The weakness in Japan's market spilled over into Europe, where Germany's DAX Index fell 47.37 points, or 2.3 percent, to 2,030. Britain's FT-SE 100 Index slumped 37.4 points, or 1.2 percent, to 3,070.6 and France's CAC 40 Index fell 62.62, or 2.9 percent, to 2,082.61.
Low rates have been driving this year's market rally, prompting investors to move money from low-yielding fixed-income instruments into stocks.
Now, rates are rising. Higher rates make bonds and other fixed-income investments more attractive. compared with stocks.
"The rise in rates is getting very concerning," said Peter Anderson, senior vice president at Federated Research Investment Counseling.
The Dow Jones utilities average, which tends to fall when rates advance, is down 13 percent in the past two months. Yesterday, the utilities average rose 0.33, to 223.97.
Not everyone is convinced interest rates will continue to climb. Thomas Quick, president of Quick & Reilly Group Inc., said low inflation probably would lead to lower rates and higher stock prices over the next several months. "There is a growing perception that the stock market will continue to rise," Mr. Quick said.
A survey by Bloomberg Business News, taken Friday, indicated that fund managers expected bond yields to fall. The decline in rates would be driven by subdued inflation, more corporate restructurings and slower economic growth induced by federal income taxes.