Stocks Stable With Harsh Losses as Equity Players Eye Interest Rates

It's bad for the longs but not getting much worse as stocks and bonds sell off on inflation fears.
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OK, remember everything we said yesterday about the upcoming

Federal Open Market Committee

meeting being a "total nonevent" and inflation jitters going

poof!

bye-bye? Forget it.

No matter how the major stock indices close today's session -- traders can't comment enough on this market's resiliency -- it's safe to say folks are deeply worried that the

Fed

will adopt a bias toward raising interest rates Tuesday after this morning's release of inflation-heralding

Consumer Price Index

figures.

The April CPI gained 0.7%, well above the 0.4% expected by economists. The core, which excludes the often volatile food and energy sectors, tacked on 0.4% -- above an expected 0.2% gain. Bonds weren't taking it well -- to put it mildly -- and a 6% yield on the long bond doesn't seem that far off. The 30-year Treasury was collapsing 2 12/32 to 90 18/32, lifting its yield to 5.93%. (For more on the fixed-income market, see today's early

Bond Focus.)

Stocks also were making a broad move southward, but salespeople are used to seeing 100-plus action these days.

"It feels like we've stabilized, and for the last half-hour buyers have felt comfortable coming back in," said Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee, around 11 a.m. EDT. "They're getting their convictions back, their confidence back. ... There's no real nervousness -- I don't see it. It's calm. Hey, it's Friday in the summer -- you're gonna start losing some volume sometime soon."

Herrick noted the stock market's recent pliability, saying that "nothing surprises me anymore" and that it's possible the buy-on-the-dippers will make an afternoon appearance. The trader doesn't expect the Fed to make a move next week, he said, because "

Robert

Rubin

wouldn't have picked this time to resign if they were gonna make a move. They'll keep things quiet." But Herrick admitted that if the long-bond's yield hits the psychologically important 6%, "people are going to get nervous."

As for the CPI numbers, the trader said recent economic data provide more of a mixed picture than investors may realize.

Yesterday's friendly

Producer Price Index

data are "higher on the food chain" than today's CPI data, he said. "Plus, tobacco and oil had a lot to do with this. I think people will start to break down the numbers eventually."

The

Dow Jones Industrial Average

lately was falling 161, or 1.5%, to 10,946, above its intraday low of 10,908.16. Financials, not surprisingly, were getting whacked the hardest, with

American Express

(AXP) - Get Report

,

Citigroup

(C) - Get Report

and

J.P. Morgan

(JPM) - Get Report

each down about 4%.

Those among the gilded 30 basking in green light were

Alcoa

(AA) - Get Report

,

Caterpillar

(CAT) - Get Report

,

Disney

(DIS) - Get Report

,

International Paper

(IP) - Get Report

,

Procter & Gamble

(PG) - Get Report

and

Union Carbide

(UK)

. Strength in such economically sensitive companies lends credence to the idea that the cyclical rally hasn't run its full course yet. But the

Morgan Stanley Cyclical Index

was off 0.1%.

The broader

S&P 500

was off 24, or 1.8%, to 1343, and the smallish-cap

Russell 2000

was off 7, or 1.5%, to 444.

Along with Herrick, Gary Kaltbaum, chief technical analyst at

J.W. Genesis Securities

in Boca Raton, Fla., also wasn't astonished that stocks weren't down more.

"The technicals of this

stock market still look good," he said. "It's the bond market that's completely broken down. It'll take a lot more than this to crack the stock market into a good correction. The average stock has been holding up very well. Enough stocks in enough sectors on heavy volume have been doing well that it'll take more than one day to crack 'em."

Techs weren't doing much better than blue-chips, and the

Nasdaq Composite Index

was losing 32, or 1.2%, to 2550, above its session low of 2529.96. Here,

MCI WorldCom

(WCOM)

and

Oracle

(ORCL) - Get Report

were among the few enjoying gains at midday.

TheStreet.com Internet Sector

index was down 10, or 1.5%, to 632.

Market internals were decidedly in the dumps. On the

New York Stock Exchange

, decliners were leading advancers 2,314 to 608 on 424 million shares. And the downs had the ups 2,323 to 1,360 on 535 million shares in

Nasdaq Stock Market

activity. New 52-week lows were leading new highs 56 to 14 on the NYSE, but highs were ahead of lows 29 to 22 on the Nasdaq.

Kaltbaum is calling for

Greenspan & Co.

to hoist rates a quarter-point Tuesday.

"Greenspan is behind the curve and needs to catch up," he said. "They need to show that the Fed is ahead of the game, that they're on top of things, not sitting idly by. Just a little tinkering to say, 'Hey, we're standing by, making sure everything's OK.' I mean, we're at 5.93% now

on the long-bond yield -- the next stop is 6.1%. The momentum has been put into place even to go to 6 1/2. And short rates are going higher. A lot of people that forgot about the word inflation have to start remembering again."

"But look," the strategist continued, "interest rates are going higher because the economy is very strong -- earnings are good, there's reflation around the world. That's not the worst thing in the world."

Friday's Midday Movers

By Thomas Lepri
Staff Reporter

@Home

(ATHM) - Get Report

was swimming upstream amid a broad growth stock slump, lately up 2 13/16 to 152 1/16 after it last night set a pact with

Microsoft

(MSFT) - Get Report

to speed up the deployment of broadband Internet services. @Home filed today with the

Securities and Exchange Commission

a secondary shelf registration for as much as $437 million in convertible subordinated debt, including about 2.8 million series A common shares issuable upon conversion of those securities.

But it was the inflation-unfriendly data coming out of the

Labor Department

that was really moving most stocks today. The agency's Consumer Price Index unleashed several cans of whupass on the financials. Dow component J.P. Morgan was down 5 7/16 to 141 5/16, giving back gains from yesterday's run-up on rumors that the bank may be on the takeover list for the likes of

Goldman Sachs

(GS) - Get Report

and

Chase

(CMB)

; American Express was down 4 3.8 to 120 3/8;

Morgan Stanley Dean Witter

(MWD)

was down 6 5/16, or 5.8%, to 101 11/16; and

Merrill Lynch

(MER)

was off 4 3/4, or 5.5%, to 81 1/2.

In other news:

Adtran

(ADTN) - Get Report

, which makes products for high-speed data transmission, was up 3 1/16, or 14.4%, to 24 5/16 after

Hambrecht & Quist

initiated coverage with a buy.

Networking gear maker

3Com

(COMS)

was up 2 5/16, or 8.7%, to 28 15/16 on rumors that it is a takeover target -- a rumor started in Gene Marcial's oft-mistaken "Inside Wall Street" column in

Business Week

. The magazine identified possible bidders as

Ericsson

(ERICY)

, lately off 1 to 27, and

Lucent

(LU)

, down 2 1/8 to 58 7/8.

Wrought-iron furniture manufacturer

Meadowcraft

(MWI)

was up 1 15/16, or 20.1%, to 11 9/16 after it agreed last night to a $53.2 million buyout by controlling shareholder and Chairman

Samuel Blount

. Blount, who already owns about 73% of Meadowcraft's common stock, is paying $10 a share in cash.

Shares of Web credit card processor

NextCard

(NXCD:Nasdaq) are soaring in their first day of trading, lately up 15, or 75%, to 35. NextCard was priced last night at $20 a share by lead underwriter

Donaldson Lufkin & Jenrette

, outside its revised pricing range of $17 to $19.

International telecom carrier

Pacific Gateway Exchange

(PGEX)

was up 4 7/16, or 12%, to 41 3/8 after it last night reported first-quarter earnings of 22 cents a share, a penny below the 11-analyst forecast and a repeat of the year-ago figure.

Investors aren't reacting well to life and health insurer

Provident American's

(PAMC)

Internet

Houdini

act. Provident was down 3 1/8, or 8.1%, to 35 1/4 after setting plans to merge itself into its majority-owned subsidiary, online health insurance marketer

HealthAxis.com

.

Silknet Software

(SILK) - Get Report

was up 6 7/8, or 19%, to 40 3/8 two days after

priceline.com

(PCLN)

agreed to use its Silknet eCommerce and Silknet eService products on its Web site.

Seagram

(VO) - Get Report

was sinking 3 1/8, or 5.3%, to 55 7/16 on news of some impending dilution. Seagram filed with the SEC to offer $2.3 billion in common stock.

Tut Systems

(TUTS)

was giving back yesterday's gains from

Lehman Brothers'

upgrading of the stock to buy from neutral. Tut was down 5 3/16, or 9.8%, to 47 3/4.

Retail store operator

Venator

(Z) - Get Report

was up 1 15/16, or 20.1%, to 11 9/16 after Morgan Stanley Dean Witter upgraded it to near-term buy from neutral.

Baby Bell

U S West

(USW)

is lifting a bit after

CNBC

reported that it has held merger talks with undersea fiber-optics firm

Global Crossing

(GBLX)

. U S West lately was up 5/16 to 60 5/16, while Global Crossing had dropped 1 5/16 to 58 7/8.

Earnings/revenue movers

Retailer

Nordstrom

(NOBE)

was down 3 3/16, or 9%, to 32 1/2 after it last night reported first-quarter earnings of 22 cents a share, missing the 20-analyst

First Call

forecast by 2 cents and above the year-ago 21 cents. The retailer also said same-store sales fell 2.6% from a year earlier.

Canadian auto parts company

Magna International

(MGA) - Get Report

was up 1 7/16 to 61 1/2 after reporting first quarter earnings of $1.22 a share, 6 cents over the 11-analyst call and down from last-year's $1.33.

Customer service software maker

PegaSystems

(PEGA) - Get Report

was up 2, or 40.5%, to 6 15/16 after it last night announced a deal to work on

America Online's

(AOL)

Member Services division. The deal was timely, as last night PegaSystems posted a first-quarter loss of 29 cents a share, wider than the four-analyst estimate of 13 cents and down from the restated penny earned a year ago.