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Stocks mixed after industrial report

Construction workers do rebar work at a construction site in downtown Portland, Ore., on Monday. The Commerce Department says construction spending rose four-tenths of one percent in August to a new record and was the biggest increase in four months.

Stocks mixed after industrial report

NEW YORK - Stocks were mixed Monday after a report showed that the nation's manufacturing sector is expanding but facing even higher costs, triggering worries about inflation and rising interest rates.

The market made a brief advance in early trading, lifted by lower oil prices and a pair of multibillion-dollar acquisitions, but retraced its steps as investors mulled the latest industrial data from the Institute of Supply Management. Meanwhile, news that global computer chip sales grew 1.7 percent in August bolstered gains in technology stocks.

While the ISM's index was better than expected and signaled that manufacturing has so far withstood the effects of hurricanes Katrina and Rita, companies reported another steep rise in raw materials prices last month amid record energy costs. Price inflation is among the top reasons for the Federal Reserve to keep to its policy of raising interest rates.

The hurricanes are "not only creating shortages near term, but also will ultimately create a kind of vortex of demand that will be concentrated in the fourth and first quarters," said Jack Ablin, chief investment officer at Harris Private Bank. "There has been concern that that will create inflation pressure for building materials.

"Any observer who thought there was light at the end of the Fed-tightening tunnel will be deeply disappointed," he added, suggesting the Fed will hike interest rates again when it meets in November.

The Dow Jones industrial average dropped 33.22, or 0.31 percent, to 10,535.48.

Broader stock indicators ended mixed. The Standard & Poor's 500 index was down 2.11, or 0.17 percent, at 1,226.70, while the Nasdaq composite index gained 3.74, or 0.17 percent, to 2,155.43.

Bonds extended their slide, with the yield on the 10-year Treasury note climbing to 4.39 percent from 4.33 percent on Friday.

The U.S. dollar was mixed against other major currencies in European trading, while gold prices slipped.

The Dow quickly slid into negative territory although ISM said its September manufacturing index surged to 59.4, the best reading in a year. Economists were looking for the index to come in at 52, down slightly from 53.6 in August.

Wall Street enjoyed some relief as crude oil followed Friday's profit-taking session with a second day of declines, although worries remain about heating oil shortages this winter while Gulf Coast refineries recover from the hurricanes. A barrel of light crude fell 77 cents to $65.47 on the New York Mercantile Exchange.

Insurance stocks tumbled after Ace Ltd. and Aspen Insurance Holdings Ltd. updated their estimated losses from the recent hurricanes.

Ace forecast an operating loss for the latest quarter, with costs totaling $550-million from Katrina and between $100-million and $150-million from Rita, while Aspen more than doubled its projected Katrina impact to a range of $325-million to $400-million. Ace dropped $1.49 to $45.58, and Aspen plunged $4.14 to $25.41.

Wal-Mart Stores Inc., the world's biggest retailer, on Monday said its September same-store sales should grow 3.8 percent, at the upper end of a prior 2 to 4 percent target. Wal-Mart lost 6 cents to $43.76.

[Last modified October 4, 2005, 02:15:30]