Rate Concerns Weigh on Dow

Stocks fell moderately Wednesday amid fears that the Federal Reserve’s stance toward interest rates may derail a fourth-quarter rally.

Financial shares such as Bank of America led the market’s slide, reflecting concern that the Fed may set the stage for 2006 rate increases when policymakers meet next week. The central bank is expected to boost its target rate a quarter point for a 13th straight time to 4.25%.

“When the market is uncertain, it either drifts or goes down,” said Cummins Catherwood, who helps manage $715 million at Walnut Asset Management in Philadelphia. “Looking at the economic figures that we’re seeing, it tells you that inflation is coming. I suspect the Federal Reserve will keep beating on it gradually.”

Data on U.S. petroleum inventories came in better than expected, but that didn’t improve Wall Street’s mood.

The Dow Jones industrial average fell 45.95 points, or 0.4%, to 10,810.91.

Broader stock indicators were lower. The Standard & Poor’s 500 index fell 6.33 points, or 0.5%, to 1,257.37, and the Nasdaq composite index fell 8.75 points, or 0.4%, to 2,252.01.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange.

U.S. Treasury yields rose as profit taking trumped a relatively successful auction of $13 billion of five-year notes.

Traders were heartened by a solid showing from indirect bidders, which include customers of primary dealers and foreign central banks, because this group had largely shunned November’s five-year sale.

Yet the tide of early selling appeared too strong for the auction to reverse it, sending yields on benchmark 10-year notes to 4.51%, from 4.48% on Tuesday. Bond yields rise as their prices fall.

The new five-year notes were sold at a high yield of 4.435% and garnered 2.38 times the number of bids per dollar of debt on offer, below the 2.53 average so far this year.

Surprisingly strong weekly inventory numbers from the Department of Energy sent crude oil futures down 73 cents a barrel, to $59.21 in New York trading.

Gold continued its upward trend, gaining $4.10 an ounce to $514.30, a new 22-year high.

Wall Street’s retreat reflects a market where neither the bulls nor the bears have the courage of their convictions, said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp.

Bear Stearns’ strategy team said in a note this week, “The market is overbought, in our view, and, amid a prolonged Fed tightening phase, it is difficult to see how leading indicators could continue to accelerate from here. If anything, it appears the market is setting itself up for a difficult start to the New Year.”

In other market highlights:

* A gauge of financial shares slid 0.8% and contributed the most to the S&P; 500’s drop among 10 industry groups. Bank and insurance stocks had climbed 11% from the market’s low for the quarter on Oct. 13 through Tuesday.

Bank of America slipped 45 cents to $45.86. Citigroup lost 19 cents to $48.70.

* A measure of housing stocks in S&P; indexes slid 3.3%, with 15 of 16 members declining. D.R. Horton fell $1.34 to $35.06 and Pulte Homes dropped $1.81 to $40.53.

Higher borrowing costs erode the value of bonds owned by banks, brokers and insurers, and crimp demand for mortgages.

* Intel paced a decline in semiconductor makers before the company’s mid-quarter update today, sliding 52 cents to $26.15. The drop in shares of the world’s biggest chip maker helped send an S&P; gauge of semiconductor-related stocks down 1.1%. PMC-Sierra, which makes chips for telecommunications switches and routers, lost 22 cents to $7.77.

* While Intel led a drop in technology shares, some computer-related stocks rose. Cisco Systems gained 22 cents to $17.78. JPMorgan raised the shares to “overweight” from “neutral.”

* Archipelago Holdings dropped $4.60 to $55.35. Shares of the Chicago electronic market fell a day after members of the NYSE voted to buy it and transform into a public company.

* WellPoint slid $2.23 to $76.84 after saying membership in its health plans would gain 3% next year, slower than the 4% increase this year.

* ITT Industries lost $8.34 to $98.65 for the S&P; 500’s steepest drop. The maker of products including pumps and night-vision goggles may see declining revenue growth because of a “moderating defense budget outlook,” wrote Prudential Equity Group analyst Nicholas Heymann. He lowered the shares to “neutral weight” from “overweight.”