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June 7, 2000

Market Rattled As Rate Worries Resurface
By Dow Jones Newswires

We Said It Wouldn't Last...Weiss comments

NEW YORK -- Stocks closed lower Tuesday, with technology bellwethers joining the downturn among financial and retail shares late in the session. Investors booked profits in the wake of last week's huge runup among tech shares as a Federal Reserve governor rekindled worries of possible additional interest-rate increases.

The Dow Jones Industrial Average closed down 79.73, or 0.7%, at 10735.57 after gaining 20 points Monday. The Nasdaq Composite Index dropped 65.37, or 1.7%, to 3756.39, erasing gains held for much of the session, after inching up eight points in the previous session.

Big Board advancing stocks edged decliners by 13 to 12 on volume of 940 million, while Nasdaq losers pulled ahead of gainers by a similar ratio on 1.57 billion shares traded.

Among other broad-market measures, the S&P; 500 fell 9.79, the NYSE index slid 2.16 and the Russell 2000 index of small-capitalization stocks slipped 1.65.

Treasurys finished little changed as the stock market sagged, with the 10-year note's yield -- which moves inversely to the price -- rising to 6.13% from 6.12% late Monday. The dollar fell sharply against the yen and the euro.

Although recent economic data indicate the economy is slowing, San Francisco Fed President Robert Parry said Tuesday it is too soon to know if a slowdown will be sustained. Parry noted that despite Friday's May unemployment report, which showed the unemployment rate rising to 4.1%, labor markets remain tight and continue to be the subject of Fed monitoring.

Parry's comments followed similar remarks Monday by Dallas Fed President Robert McTeer and Atlanta Fed President Jack Guynn. Parry and Guynn are members of the Federal Open Market Committee, which holds its next policy meeting on June 27 and 28.

Stocks rallied last week, including a record 19% surge in the tech-laden Nasdaq Composite, on hopes that the Fed was through with its string of six interest-rate increases.

Banking stocks, which had rallied on optimism that the Fed would take a break from raising rates, fell out of favor Tuesday. Merrill Lynch analyst Judah Kraushaar told clients Tuesday that periods of rising interest rates have typically been bad for investment-banking revenue.

Investors finally paused long enough to realize that one month of data indicating a slowdown is not nearly sufficient to assure the Fed that inflation will be kept under control. It took speeches by voting members of the Federal Open Market Committee to convince investors that they're recent optimism was unfounded.

With more economic indicators due tomorrow and Friday, it remains to be seen whether investors will wait patiently on the sidelines or jump in only to be tackled when the Fed weighs in with another rate hike.

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