NEW YORK -- U.S. stocks closed mixed yesterday as Philip Morris Cos. shares plummeted and concern about inflation and rising interest rates resurfaced.
The Dow Jones industrial average, buffeted by a late burst of computer-guided "sell" orders, slid 22.54, to 3,908.12, shedding almost half of Friday's surge. Philip Morris accounted for almost 8 points of yesterday's decline.
The tobacco and food maker's stock, which set a 52-week high of $64.50 on Thursday, slid $2.75, to $61.25. Traders blamed the drop on a Florida judge's decision to accord class-action status to a lawsuit against cigarette makers, exposing the industry to another legal threat.
"Philip Morris is the bellwether in the tobacco group, and every time there's a litigation scare, traders take the stock down," said Kurt Feuerman, a managing director at Morgan Stanley Asset Management, who invests about $1 billion.
Tobacco shares were the biggest decliners in the Standard & Poor's 500 index, which fell 1.42, to 472.35, relinquishing part of Friday's 7.92-point surge. Some analysts said China's recent decision to limit tobacco advertising also may have hurt Philip Morris.
The Nasdaq combined composite index rose 1.34, to 777.49, extending Friday's 8.69-point rally. Microsoft Corp., up 87.5 cents, at $63, led the rise.
On the New York Stock Exchange, 11 stocks declined for every 10 that rose. Trading was brisk, with about 303 million shares changing hands on the Big Board.
Besides tobacco, computer systems, household products and paper and forest products shares were among the biggest decliners. Software, drugs, banks and aerospace/defense stocks were up the most.
Pfizer Inc. gained 75 cents, to $74.125, after the drug company agreed to acquire Namic USA Corp., a maker of disposable medical products, for about $155 million in stock. Namic USA jumped $3.75, to $17.375.
The Russell 2000 index added 0.02, to 255.02; the American Stock Exchange market value index climbed 0.41, to 458.57; and the Wilshire 5000 index slipped 5.20, to 4,674.18.
Stocks were lower for most of the day as yields on Treasury securities rose, creating competition for stocks and underscoring concern about inflation, analysts said.
The yield on the Treasury's benchmark 30-year bond rose as high as 7.995 percent, from 7.96 percent late Friday, after the Purchasing Management Association of Chicago said its index of manufacturing activity rose to 64.3 in October from 63.3 in September. The yield ended at 7.97.
Many traders interpreted the report as another sign that the Federal Reserve's rate increases to date haven't been enough to cool the economy and subdue inflation. That makes a rate increase at the central bank's Nov. 15 policy meeting more likely, traders said.
Yesterday's report offset the optimism stirred Friday, when the Commerce Department's initial estimate showed the U.S. economy expanded at a 3.4 percent annual rate in the third quarter, surpassing economists' expectations of 2.8 percent growth. At the same time, the report showed a barometer of inflation eased from the second quarter. The Dow industrials soared 55.51 points on Friday.
"The market took some momentary encouragement from the GDP report last week, but in and of itself that isn't enough to carry the market forward," said James Weiss, a money manager at IDS Advisory Group, which manages about $8 billion in equities.
Higher rates make fixed-income investments like bonds more attractive relative to equities, which are perceived as riskier. Higher rates also make it more expensive for companies and households to borrow money to buy goods and services.
This week will bring other reports that may provide clues to Fed policy, including today's manufacturing index from the National Association of Purchasing Management and Friday's release on October employment from the Labor Department.