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Wall Street flees rate fears
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June 1, 1999: 11:49 a.m. ET
Manufacturing report feeds concerns of rising interest rates, spurring stock selling
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NEW YORK (CNNfn) - An unexpectedly robust manufacturing report fed into Wall Street's lingering fears of rising inflation and interest rates Tuesday, triggering a substantial sell-off and leaving investors unsteady after a long holiday weekend.
Shortly before 11:30 a.m. the Dow Jones industrial average was down 135.05 points, or nearly 1.4 percent, at 10,424.65. On the New York Stock Exchange, declines outnumbered advances 1,716 to 928. Trading volume climbed to 237 million shares.
The Nasdaq Composite lost 37.54 points, or more than 1.7 percent, to 2,432.98. The S&P 500 index shed 17.88, or nearly 1.5 percent, to 1,283.96. (Click here for a look at today's list of CNNfn's market movers.)
The bond market lost confidence after the release of the May reading of the National Association of Purchasing Management index, a key indicator of manufacturing activity. At 55.2, the index came in much higher than the 53.4 Wall Street had expected. The bellwether 30-year Treasury bond fell 1-3/32 of a point in price, for a yield of 5.91 percent.
The dollar opened slightly lower against both the yen and the euro, but recovered some ground in the early hours of U.S. trading.
Brokers on the run
A slew of news from banks and Wall Street brokerages hitting the market after a three-day holiday weekend failed to inspire buyers as most investors remained concerned about the possibility of rising interest rates ahead.
A climate of rising interest rates is especially harmful to financial stocks because higher rates make the primary business of the sector -- dealing in dollars -- more expensive.
Merrill Lynch (MER), the nation's largest traditional brokerage, heaped uncertainty on the brokerage sector by announced plans to launch trading on the Web.
The move, which makes Merrill the latest in a string of mainstream Wall Street institutions to dip into Internet business, left investors wondering what impact the jump into Internet trading will have on the industry's business model and earnings projections, said Bill Meehan, chief market analyst at Cantor Fitzgerald.
Merrill shares fell 6-7/16 to 77-9/16, while rival Donaldson, Lufkin & Jenrette (DLJ) fared no better, losing 4-15/16 to 62. Its online brokerage arm, DLJdirect (DIR), whose stock premiered on the market last week, lost 4-1/2 to 38-1/2.
Elsewhere among the online brokerages, E*Trade (EGRP) shares slid 3-13/16 to 40-11/16 after the Internet trader agreed to buy Web bank TeleBanc (TBFC) for $1.8 billion. TeleBanc shares fought the trend, soaring 9-15/16, or more than 11 percent, to 75-13/16.
In the banking sector, shares of First American Corp. (FAM) jumped 3 to 43-13/16 on news rival AmSouth Bancorp (ASO) has agreed to buy the company for $6.3 billion in stock. AmSouth's stock plunged 4-1/4, or more than 14 percent, to 24-1/8.
Other banking stocks were sharply lower, pulled down by the rate fears and the sudden upturn in bond yields. On the Dow, Citigroup (C) tumbled 1-7/8 to 42-5/16 and J.P. Morgan (JPM) lost 3-3/16 to 137-1/8, while American Express (AXP) eased 2-11/16 to 118-3/8.
Techs, Nets under pressure
The threat of higher rates ahead also kept the selling pressure on the richly-valued technology sector, which depends on sustainable interest rates for capital growth.
Intel (INTC) shares lost 1-1/8 to 52-15/16 after the chip giant announced it will buy communications software maker Dialogic (DLGC) for $780 million in cash, or about $44 per share. Investors streamed into Dialogic, pushing the stock up 10-1/16, or more than 30 percent, to 43-7/16.
Among the computer makers, Dell (DELL) slipped 1/2 to 33-15/16, while on the Dow IBM (IBM) fell 3-11/16 to 112-5/16 and Hewlett Packard (HWP) gave up 3-1/16 to 91-1/4. Smaller, more specialized computer makers suffered worse losses, with Sun Microsystems (SUNW) shares plunging 2-15/16 to 56-13/16 and American depositary receipts (ADRs) of Germany's SAP (SAP) falling 1-11/16 to 31-7/8.
Microsoft (MSFT) lost 1-3/16 to 79-1/2 as its long-running federal antitrust trial resumed amid reports the software publisher is making an aggressive push into the wireless communications industry, hoping to woo wireless makers to use Windows-based operating systems.
A $3 billion merger in the wireless field failed to win much investor support, pushing shares of wireless communications supplier The Associated Group (AGRPA) down 3-7/8 to 61-1/8 while cable TV provider Liberty Media (LMG.A), the prospective buyer, lost 15/16 to 65-1/2.
On the Internet, Amazon.com (AMZN) stock tumbled 7-5/8 to 111-1/8 after Barron's called the company "Amazon.bomb" and suggested that shares may be worth as little as $10. Rival Web bookseller barnesandnoble.com (BNBN) lost 3-1/16 to 20-1/8.
Airlines on the rebound
One bright spot for the market was the transportation sector, which soared amid strength in major airline stocks.
The fuel-sensitive Dow transports gained 27.39 points to 3,443.09 as crude oil prices eased and more leading air carriers signed on to a fare increase, the third this year. American Airlines raised its ticket prices 4 percent Monday, lifting shares of parent company AMR (AMR) 2-5/16 to 67-3/8.
US Airways (U), which also raised fares Monday, gained 1 to 49-9/16, while Delta Air Lines (DAL) added 1-1/8 to 58-1/2. 
-- by staff writer Malina Poshtova Zang with Robert Scott Martin
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