NEW YORK -- U.S. stocks closed mixed yesterday as computer-driven programs to sell stocks pared earlier gains and the dollar fell to a post-World War II low against the Japanese yen.
Stocks rallied throughout the day as the dollar strengthened against major European currencies and bond yields fell.
"Investors are seeing that the dollar decline is not as monolithic as it was a few weeks ago," said Christine Callies, market analyst at Brown Bros. Harriman & Co.
In the last hour and a half of trading, three computer-generated sell programs shaved earlier gains in major market indexes, according to Birinyi Associates Inc.
The Dow Jones industrial average fell 2.59, to 3,667.05, after soaring as much as 30.76. Caterpillar Inc., which fell $2, to $102.125, was the biggest loser in the average.
The Standard & Poor's 500 Index rose 1.56, to 447.63. Telephone companies, regional banks and utilities -- industries sensitive to changes in interest rates -- powered the rally.
The Nasdaq composite index gained 1.96, at 704.01, as Cisco Systems Inc., Novell Inc. and McCaw Cellular Communications advanced.
The dollar set a post-World War II record low of 98.80 Japanese yen, down 1.25 yen at the market's close. The previous low was 99.46, reached Monday.
The dollar held steady against other major currencies, though. It rose 0.73 pfennigs, to 1.5860 German marks, 11 lira, to 1,572 Italian lira, and 0.47 centimes, to 1.3332 Swiss francs.
Many analysts had expected stocks to plunge as the dollar fell in early trading. Those concerns ebbed as the benchmark 30-year Treasury bond pared earlier losses. The yield on the 30-year Treasury rose to 7.54 percent before falling to 7.50 percent, down from 7.52 percent at Tuesday's close.
"The rest of the financial markets are not as hung up on the dollar as they were a week ago," said Thom Brown, managing director at Rutherford, Brown & Catherwood.
Investors also were encouraged by a report released before trading began that showed the U.S. economy gaining strength with little increase in inflation.
The Commerce Department said gross domestic product grew by 3.4 percent in the first quarter of the year. While the figure exceeded economists' estimates of a 3.1 percent rise in GDP, inflation remained under control. Price increases grew at a moderate 2.6 percent in the first quarter.
Even so, analysts expected gains in stock prices this week to be limited by the dollar's fall and by questions about whether the Federal Reserve will raise interest rates at its Open Market Committee meeting in Washington on Tuesday.
"The market would be able to tolerate an increase of 25 points in the discount rate, but if the Fed raises rates 50 basis points it would sell off," said Brown Bros.' Ms. Callies.
The discount rate is the interest rate the Fed charges member banks for loans, and helps set the rate banks charge their customers. Higher rates will force consumers and businesses to pay more to borrow money to buy goods and services, and could crimp overall consumption and earnings, traders said.
Trading was moderate, with about 265 million shares changing hands by the close of the New York Stock Exchange. About three stocks rose for every two that fell on the Big Board.
Many traders said stocks rose as investors added to or took new positions in stocks before the end of the second quarter tomorrow. Moreover, some investors who took advantage of last week's decline by shorting stocks may have bought shares yesterday.
Novell Inc. was the most active U.S. stock, followed by Compaq Computer Corp., Cisco Systems Inc., Oracle Systems Corp. and Fruehauf Trailer Corp.
Fruehauf fell 62.5 cents, to $4.25, after Terex Corp. said it sold a block of 2.5 million shares of the trailer leasing company at $4 a share.