updated 5/16/2006 8:28:43 AM ET 2006-05-16T12:28:43

A late-day rebound left stocks mixed Monday, as oil and gold prices tumbled and mild economic data lifted bonds from their recent lows.

Major Market Indices

News of a slowdown in manufacturing activity in the New York region brightened the outlook for interest rates and helped bond yields retreat from four-year highs. A drop in first-quarter existing home sales also reinforced views that interest rates have been raised enough to clamp down on economic growth.

But the day’s up-and-down trading was evidence of investors’ persistent unease over inflation and interest rates after the Federal Reserve said last week that more rate hikes could be needed to battle soaring commodities prices. Weakness in global stock markets and a languishing dollar overshadowed a steep plunge in crude oil throughout most of Monday’s session; the late gains reflected bargain hunting rather than a change in sentiment.

“I think what we’re seeing here is the fear factor escalating,” Peter Cardillo, chief strategist and market analyst at S.W. Bach & Co., said of the market’s inflation and interest rate worries.

Cardillo said the market could remain in neutral ahead of key wholesale and consumer inflation reports on Tuesday and Wednesday. However, he cautioned that further declines in bond yields might trigger more selling in the near term.

The Dow Jones industrial average closed the seesaw session with a gain of 47.78 points, or 0.42 percent, after sliding as much as 48 points earlier in the session. The broader Standard & Poor’s 500-stock index was up 3.26 points, or 0.25 percent, at Monday’s close, but the technology-rich Nasdaq composite lost 5.27 points, or 0.23 percent.

Bonds leaped on the weak manufacturing data, with the yield on the 10-year Treasury note dropping to 5.15 percent from 5.2 percent late Friday. While the U.S. dollar took back some losses against the Japanese yen, traders fretted that a continually weak dollar could feed inflation; when the dollar is down, more of the U.S. currency is needed to buy foreign-made goods.

Elsewhere, gold prices dove from 26-year highs to about $685 an ounce . Cardillo attributed the retreat to overbuying in recent weeks as gold and silver pressed toward record levels, but noted that the drop “doesn’t mean we’re not headed higher in the short term.”

Another sharp drop in crude oil futures on the New York Mercantile Exchange helped support stock prices after the International Energy Agency last week reduced its forecast for global crude oil demand.

The Fed said the latest reading of its New York Empire State index came in at 12.4 for May, down 3.4 points from the previous month and well below economists’ target of 16.1. Meanwhile, the National Association of Realtors also reported a modest 2.1 percent drop in existing-home sales in the first quarter, evidence that rising mortgage rates are putting a squeeze on housing demand.

Discount retailer Target Corp. posted a 12 percent jump in first-quarter profit , but the results missed Wall Street estimates by a penny per share. Target fell $2.19 to $50.02.

AstraZeneca PLC said it is acquiring development partner Cambridge Antibody Technology Group PLC for $1.07 billion. The $25.02-per-share bid is a 69 percent premium to Cambridge’s closing price Friday. Cambridge rose $9.26 to $24.10, and AstraZeneca shed 19 cents to $53.70.

Bausch & Lomb Co. jumped $5.64 to $50.08 after the company pulled a contact-lens solution that has been linked to a recent outbreak of a fungal eye infection known to cause blindness.

Boeing Co. agreed to pay $615 million to end a three-year Justice Department probe into alleged defense contracting scandals, The Wall Street Journal said. Boeing lost $1.15 to $85.86.

Overseas, Japan’s Nikkei stock average dropped 0.69 percent. Britain’s FTSE 100 slid 1.2 percent, Germany’s DAX index declined 1 percent and France’s CAC-40 was lower by 1.66 percent.

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