US stocks slip amid interest rate jitters

Wall Street gave up a big advance and turned lower today as investors suffered a renewed case of the jitters ahead of the Federal Reserve’s meeting on interest rates later this week.

The stock market, which has seen huge swings in recent weeks, was initially relieved to hear from the National Association of Realtors that existing home sales declined in May by only 0.3% to 5.99 million units. The tepid reading was expected, and indicated that the housing sector is still weak – the pace of existing home sales was the slowest in four years, housing inventories rose by 5% to the highest level since 1992, and the median home price fell for a record 10th consecutive month.

The data was not enough to keep the stock market afloat, so when crude oil prices rose back above 69 dollars a barrel on news of US refinery outages, many investors chose to take money off the table.

High energy prices could translate to accelerating inflation – which investors fear the Fed may use as a reason to raise interest rates later in the year. The Fed is scheduled to meet this Wednesday and Thursday.

“Without much of a catalyst right now, profit-taking from that big rise earlier this morning is what we’re seeing. The stock market doesn’t like uncertainty,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.

He added that Wall Street is growing concerned again about the troubles surrounding subprime lending, or lending to people with poor credit histories.

Bear Stearns Cos said last week that two of its hedge funds nearly collapsed after betting on complex securities backed by subprime mortgages. Bear Stearns’ stock fell more than 3% today.

The Dow Jones industrial average fell 8.21, or 0.06%, to 13,352.05, after rising more than 100 points earlier in the day, and falling 185 points on Friday.

Broader stock indexes also fell. The Standard & Poor’s 500 index fell 4.82, or 0.32%, to 1,497.74, and the Nasdaq composite index lost 11.88, or 0.46%, to 2,577.08.

A decline in Treasury yields failed to calm the stock market today. The 10-year Treasury note’s yield fell to 5.09% from 5.14% late on Friday, dampened by worries about mortgage-backed securities. If high-risk investments are souring, investors tend to buy up safe-haven Treasury issues.

Soaring yields have played a starring role in the stock market’s volatility this month, because higher rates can slow down corporate activity. The 10-year yield’s climb above 5% knocked the Dow from a record high reached on June 4, and since then stocks have been rising and falling fitfully as investors attempt to determine interest rates’ direction.

Last week, the three major indexes posted sizeable losses: the Dow dropped 2.1%, the S&P declined 2% and the Nasdaq dipped 1.4%.

Central bankers are widely expected to keep the benchmark rate steady at 5.25% on Thursday, but Wall Street is unsure about whether the Fed will alter its stance on inflation, which could mean a rate hike or decrease later in the year.

On Tuesday, investors will be closely reading the Conference Board’s June consumer confidence index and the Commerce Department’s report on May new homes sales.

So far, despite the weak housing market, the economy appears to be on the rebound.

“My sense is consumption is still reigning – consumer sales are up,” said Richard Hoyt, market strategist at KDV Wealth Management, pointing to the Commerce Department’s report earlier this month that May retail sales jumped by 1.4%.

But even if economic data keep coming in strong, analysts predict high volatility ahead of second-quarter earnings season, which begins in earnest in mid-July.

Blackstone Group LP – the private-equity powerhouse which went public on Friday - fell 2.62 dollars, or 7.5%, to 32.44 dollars in its second day of trading. Investors were concerned about valuation of the company, and also speculation that big buyout deals might begin to dry up.

In other corporate news, Rupert Murdoch was said to be near a pact to guarantee editorial independence of The Wall Street Journal if News Corp acquires Dow Jones & Co, according to newspaper reports on Sunday. Dow Jones fell 1.30 dollars, or 2.2%, to 57.70 dollars, while News Corp rose 18 cents to 23.50 dollars.

The Russell 2000 index of smaller companies fell 7.29, or 0.87%, to 827.46.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.74 billion shares, down from 2.62 billion on Friday.