updated 6/23/2006 7:59:30 AM ET 2006-06-23T11:59:30

Wall Street posted a moderate decline Thursday, giving back part of the prior session’s gains as investors once again fretted about interest rates and the economy.

Major Market Indices

A slight rise in weekly unemployment claims met expectations of a weakening job market, but a greater-than-forecast drop in the Conference Board’s index of leading indicators stoked concerns about a dropoff in economic growth. Meanwhile, higher oil prices and rising bond yields also weighed on Wall Street’s mood.

The market continued its familiar pattern of up-and-down trading ahead of the Federal Reserve’s policy meeting next Wednesday and Thursday. Stocks have steadied somewhat after a six-week freefall on worries that escalating core prices could prompt the Fed to keep boosting rates, but the risk of an economic downturn has kept the market from making substantial gains.

Although investors are certain the Fed will hike interest rates again, they have been nervous about the central bank’s opinion of inflation and unwilling to place bets while the outlook remained murky.

“The base-building process is going to take a couple months to complete,” said Steven Goldman, chief market strategist for Weeden & Co. “We’re going to see pockets of strength, pullbacks, rallies. We’re hopefully looking for a bottom from which to build a rally later this year.”

At the close, the Dow Jones industrial average sank 60.35, or 0.54 percent, to 11,019.11, after tumbling as much as 93 points earlier in the session. The Dow gained almost 105 points Wednesday.

Broader stock indicators also were lower. The Standard & Poor’s 500 index slid 6.60, or 0.53 percent, to 1,245.60, and the Nasdaq composite index lost 18.22, or 0.85 percent, to 2,122.98.

Bond yields remained inverted as prices dropped. The yield on the 10-year Treasury note climbed to 5.21 percent from 5.16 percent late Wednesday, while the 2-year yield rose to 5.24 percent. Higher short-term yields over long-term yields is seen as a signal of investor pessimism.

Crude futures gained after the government reported only a small increase in gasoline stocks as the peak summer driving season gets under way. A barrel of light crude added 51 cents to settle at $70.84 on the New York Mercantile Exchange.

Elsewhere, the U.S. dollar surged against the Japanese yen and was flat versus European currencies. Gold prices were lower at about $582 per ounce.

Strong manufacturing and export data catapulted Japan’s Nikkei stock average 3.36 percent, its biggest one-day gain in six months. European markets followed suit, with Britain’s FTSE 100 adding 0.34 percent, Germany’s DAX index gaining 0.55 percent and France’s CAC-40 rising 0.6 percent.

With few economic reports to guide investors, stocks have drifted this week amid persistent fears that rising inflation could prompt the Fed to keep hiking rates despite a slowing economy. Thursday’s retreat erased more than half of Wednesday’s advance, leaving the major indexes barely changed for the week thus far.

“I’m not seeing today’s decline as particularly worrisome,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “I think it’s more profit taking and a wait-and-see attitude than a return of the real fear factor.”

In economic news, the Conference Board’s index of leading indicators declined 0.6 percent in May, a slightly wider loss than the 0.5 percent drop projected by economists. Wall Street has been wary of the possibility that the economy might moderate too quickly.

The Labor Department said the number of jobless claims filed grew by 11,000 to 308,000 last week, just beating economists’ estimate of 305,000. The upswing reinforced beliefs that the job market is beginning to weaken.

Health-care stocks stumbled after The Wall Street Journal said several major hospitals were scaling back their use of expensive drug-coated coronary stents. Dow component Johnson & Johnson slid 61 cents to $61.18, while Boston Scientific Corp. shed 50 cents to $18.61.

The airline sector slumped on news that British and U.S. regulators are probing several carriers over ticket prices and fuel surcharges. British Airways PLC fell $4.09 to $63.70, but United Airlines parent UAL Corp. rose 25 cents to $32.50.

Federated Department Stores Inc. reached a deal to sell its Lord & Taylor chain to two real estate investment firms for about $1.2 billion. Federated added 33 cents to $36.13.

Bed Bath & Beyond Inc. dropped $2.21 to $34.71 after an analyst said the home retailer issued a weak full-year earnings projection.

Declining issues led advancers by 2 to 1 on the New York Stock Exchange, where volume of 1.47 billion shares trailed the 1.67 billion shares that changed hands Wednesday.

The Russell 2000 index of smaller companies declined 2.63, or 0.38 percent, to 688.04.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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