NEW YORK -- U.S. stocks closed lower yesterday amid concern about a weak dollar and a decline in shares of defense companies.
"If the dollar continues to sell off, we will see more weakness in the bond market and in the stock market," said John Groveman, president at Ladenburg, Thalmann & Co.
The Dow Jones industrial average fell 3.89, to 3,751.22, its fourth straight decline. Shares of United Technologies Corp. and Boeing Co. dragged the average lower after the Pentagon, in an internal memo, said it was rethinking some aircraft contracts.
Among the programs that could be curtailed are $40 billion for the Comanche helicopter program of Boeing and United Technologies, and $71 billion for 442 of Lockheed Corp.'s F-22 jet fighters.
United Technologies fell 75 cents to $60.75, and Boeing fell 87.5 cents to $44.125, collectively wiping about 5 points off the average.
Shares of other companies that could be affected by spending cuts also fell. Martin Marietta Corp. dropped 87.5 cents, to $47.875; Lockheed dropped $1.25, to $63.125; McDonnell Douglas Corp. declined $2.75, to $112.625; Textron fell 75 cents, to $52.375; and Northrop Grumman Corp. fell 75 cents, to $42.25.
Among broader market indexes, the Standard & Poor's 500 index fell 1.37, to 462.31, as automakers, telephone companies and software makers skidded.
The Nasdaq combined composite Index fell 0.14, to 742.29, as gains in Intel Corp. and Chiron Corp. were offset by declines in Novell Inc. and MCI Communications Corp.
Trading was slow, with 237 million shares changing hands on the New York Stock Exchange, about 40 million shares shy of the daily average over the past six months. Eleven stocks fell for every nine that rose on the Big Board.
The dollar fell 0.85 yen to end at 97.80 Japanese yen, a five-week low, amid concern that little progress is being made in trade talks over Japan's $60 billion trade deficit.
A weak dollar makes imported goods more expensive for U.S. consumers, raising the specter of inflation, which erodes the value of fixed-income investments like bonds. Weakness in the currency also keeps overseas investors from buying dollar-denominated assets.
"Given the weakness in the dollar, there is very little reason for the stock market to rise," said Alan Ackerman, market strategist at Reich & Co. "The dollar is still trading down on perceived White House weakness. Should we see any strength in the dollar or any flattening out of interest rates, the market could break out of its tight trading range."
The yield on the benchmark 30 1/4 -year Treasury bond responded to the dollar's slump by rising to 7.55 percent from 7.48 percent Friday. Higher rates make stocks less attractive relative to fixed-income investments like bonds.
"We continue to be held hostage by the bond market," said Grafton Potter, research director at BancOklahoma Trust Co. He said stocks will probably trade within a narrow range until investors get a clear indication of whether the economy is slowing and the Fed is done raising rates.
Last week, the Federal Reserve raised the federal funds rate -- which banks charge each other for overnight loans -- to 4.75 percent from 4.25 percent. It also raised the discount rate, which it charges member banks for overnight loans, to 4 percent from 3.5 percent.