NEW YORK (CNN/Money) -
U.S. stock markets tumbled Monday, with investors retreating from last week's gains in the face of a new round of jitters about rising interest rates.
The Nasdaq composite (down 29.88 to 1969.99, Charts) lost 1.5 percent, the Standard & Poor's 500 (down 11.18 to 1125.29, Charts) index lost 1 percent and the Dow Jones industrial average (down 75.37 to 10334.73, Charts) lost 0.7 percent.
"There's a lack of catalysts today, and so we're trending downward," said Doug Sandler, an equity analyst at Wachovia Securities. "I think the market has discounted a lot of the bad news, but there are still some day-to-day fears about interest rates, about the presidential election or about terrorism."
Looking ahead, he says, a summer rally is likely, but for the very near-term, markets are bound to remain rangebound.
Investors came back from the three-day weekend ready to bail out of a number of sectors. Financial markets were closed Friday for a day of mourning for former President Ronald Reagan.
Ahead of that, a shortened trading week had pushed the major indexes to the higher end of a long-time trading range. But investors backed off those marks Monday as interest rate concerns returned front and center after Federal Reserve officials made hawkish comments late last week.
With such concerns in mind, investors will be particularly focused on Tuesday's consumer price index (CPI). Due before the open, May CPI is expected to have risen 0.5 percent after having risen 0.2 percent in April, according to a consensus of economists surveyed by Briefing.com. The "core" CPI, which excludes food and energy, is expected to have risen 0.2 percent after having risen 0.3 percent in April.
In addition, Federal Reserve Chairman Alan Greenspan is due to speak later in the session, in connection with his Senate nomination hearing. For more on interest rates and the market, click here.
Also due early Tuesday is the June New York Empire State index, a regional manufacturing read. The index is expected to have risen marginally to 30.5 from 30.2 in May.
After the start of trading, the University of Michigan releases its preliminary June read on consumer sentiment, expected to show a rise to 90.8 from 90.2 in May.
Stocks likely to be in focus early Tuesday include Boeing (BA: Research, Estimates), which gained more than 2 percent in after-hours trade following news that it won a multibillion dollar contract from the U.S. Navy to design a replacement for the current fleet of submarine-hunting P-3 aircraft.
Lockheed Martin (LMT: Research, Estimates) had been widely expected to win the contract.
Transport company Yellow Roadway (YELL: Research, Estimates) rallied 5 percent after the bell Monday after raising its current-quarter earnings forecast, citing supportive economic conditions.
The rate hike question
Stock markets have been obsessed with interest rates, particularly in the last two months, with investors concerned that a rise might eventually crimp the economic recovery, corporate profits and hit stock prices.
Investors are expecting the Fed to raise the fed funds rate by a quarter-percentage point at its June 29-30 policy meeting. But comments from a number of Fed officials last week -- including Federal Reserve Chairman Alan Greenspan -- gave rise to concern that the Fed may boost rates by a half-percentage point.
In particular, last Friday, two Fed governors made comments that seemed to imply the Fed may need to move faster in terms of raising rates should a surge in inflation demand it.
"There are some people who would like to see the Fed raise by a half-percentage point when it meets next, so it's really hard to determine what kind of Fed move would be seen as either good or bad for the market," said Brian Bensch, investment manager at Melhado, Flynn & Associates.
"But I think any response to the Fed's next move will be short-lived," he added.
Any inflationary concerns were further addressed by Monday's economic news.
The trade deficit hit $48.3 billion in April, a record, up from a revised $46.6 billion in March.
Retail sales rose 1.2 percent in May, topping April's rise and surpassing economists' expectations. Sales excluding autos rose 0.7 percent, also above April's rise and more than expected.
On the Nasdaq, 8 of the 10 most heavily-weighted issues declined, including Intel (INTC: down $0.65 to $27.99, Research, Estimates) and Cisco Systems (CSCO: down $0.50 to $23.32, Research, Estimates), which both lost more than 2 percent.
Intel was the Dow's biggest decliner, followed by economically sensitive stocks such as General Motors, Alcoa (AA: down $0.48 to $30.62, Research, Estimates), JP Morgan (JPM: down $0.64 to $37.16, Research, Estimates) and Citigroup (C: down $0.61 to $46.74, Research, Estimates). In total, 23 of the 30 blue chips that comprise the Dow industrials tumbled.
Dow component Wal-Mart Stores (WMT: down $0.82 to $56.38, Research, Estimates) declined after reiterating that June sales at stores open a year or more would rise at the low end of a four percent to six percent range.
Among other retailers, shares of 99 Cents Only Stores (NDN: down $6.38 to $14.10, Research, Estimates) plunged more than 31 percent in active New York Stock Exchange trade. On Friday the company warned that second-quarter results would sorely miss current expectations because of problems with higher costs and inventory controls.
News that Nokia (NOK: down $0.16 to $14.08, Research, Estimates) has introduced five new phones sent rival Motorola (MOT: down $0.91 to $18.95, Research, Estimates) down 4.8 percent.
Specialty pharmaceutical company QLT (QLTI: down $3.47 to $17.55, Research, Estimates) said it would buy Atrix Laboratories (ATRX: up $3.37 to $31.39, Research, Estimates) for about $855 million in cash and stock. Shares of QLT lost 16.5 percent, while shares of Atrix gained 12 percent.
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Market breadth was negative. On the New York Stock Exchange, where 1.17 billion shares changed hands, decliners outnumbered advancers by five to one. On the Nasdaq, losers beat gainers by nearly three to one as 1.38 billion shares changed hands.
Treasury prices tumbled, pushing the 10-year note's yield up to 4.87 percent from 4.80 percent late Thursday. The dollar fell versus the yen and euro.
Among commodities markets, NYMEX light sweet crude oil futures lost 77 cents to settle at $37.88 a barrel. COMEX gold fell $2.40 to settle at $384.20 an ounce.