NEW YORK -- Blue-chip stocks extended their losses Friday as the renewed threat of higher interest rates convinced investors that the strong corporate earnings of the second quarter might be in jeopardy.
After dropping as much as 100 points in early trading, the Dow Jones industrial average closed down 58.26 at 10,910.96. For the week, the Dow lost 298.88 or 2.7 percent.Broader stock indicators were mixed, as the Nasdaq composite index, which fell steeply earlier this week, managed a last-minute gain of 7.96 to close at 2,692.40. For the week, the Nasdaq lost 6.1 percent.
Banks and brokerages led the Dow lower Friday, as Thursday's remarks from Federal Reserve Chairman Alan Greenspan echoed on Wall Street.
Greenspan told Congress that while 1999 has been an exceptional year for the U.S. economy, the central bank would "act promptly and forcefully" to raise interest rates at the first hint of inflation pressures.
Friday, financial services stocks were hit hardest. J.P. Morgan, down 2 3/4 at 133 9/16, was the weakest component of the Dow. Big rival brokerages like Merrill Lynch, down 2 5/16 at 71 11/16, also tumbled. Those businesses are generally the first to suffer from rate increases, because clients postpone borrowing in light of the higher costs.
The threat of higher rates also sent bond prices plummeting for a second straight session, pushing the yield on the 30-year Treasury bond up to 6.02 percent from 5.96 percent late Thursday. Traders consider bond yields above 6 percent a menace to stocks, because at that level, bonds present an attractive investment alternative.
Debate over Greenspan's message deflected some attention from the latest companies to report strong earnings.
"After Greenspan's speech, many believe that the Fed may be more aggressive than expected," said Alan Ackerman, senior vice president at Fahnestock & Co. "The fear of higher interest rates is overshadowing the strong earnings we are seeing."
Among the positive earnings news Friday was a report from Sun Microsystems, which said its fourth-quarter profit grew a better-than-expected 30 percent. Sun's stock rose 3 3/16 to 70 3/8.
Computer seller Gateway rose 10 3/16 to 73 1/16 after the company reported a 47 percent increase in second-quarter earnings.