Stocks Tumble in Late Sell-Off

Stocks fell sharply Tuesday as investors reacted to rising interest rates, a car bombing in Indonesia and a weak forecast from key retailer Costco Wholesale.

Several analysts downplayed the sell-off, however, saying that stocks were due for a breather and that long-term interest rates, despite their recent surge, aren’t high enough yet to snuff out an economic rebound. In addition, trading volume was weak -- typical of a summer session and an argument against reading too much into Tuesday’s market action.

The Standard & Poor’s 500 index sank 17.36 points, or 1.8%, to 965.46, its lowest close since May 30. The Dow Jones industrial average lost 149.72 points, or 1.6%, to 9,036.32, with all 30 stocks in the index posting losses. In percentage terms, it was the steepest one-day tumble since May 19 for both indexes.

The technology-laden Nasdaq composite index slid 40.56 points, or 2.4%, to 1,673.50, its lowest close since July 3.

Losers topped winners by 2 to 1 on the New York Stock Exchange and Nasdaq.

The market hovered with moderate losses through much of the day before selling off in the last 90 minutes of trading. Analysts said the selling intensified when it appeared the S&P; 500 would fall below 975, the lower limit of the benchmark index’s trading range since late May.

“It became clear late in the day that we’d break this trading range, so the trading community pressed it,” sharpening the sell-off, said Anthony F. Dwyer, equity strategist for FTN Midwest Research in Manhattan.

Investors reacted sharply to a statement by Costco that it was cutting its profit forecast for the rest of the year. The discounter’s shares plunged $6.90, or 19%, to $30.06 on Nasdaq.

Also adding to negative market psychology was news of a car bomb that killed at least 14 people and wounded about 150 in Jakarta, Indonesia’s capital, on Tuesday. Authorities called the apparent suicide attack an act of terrorism.

Investors also were spooked by rising interest rates, which can choke off consumer spending and pull investment dollars away from stocks.

Yields on government bonds spiked after fixed-income investors gave the Treasury Department’s $24-billion auction of three-year notes a tepid reception, and a stronger-than-expected report on the U.S. services sector provided more evidence of economic growth.

The yield on the benchmark 10-year Treasury note jumped to 4.39% from Monday’s close of 4.28%. Since mid-June, the yield has surged from a generational low of 3.11%. Mortgage rates also have moved up from multiyear lows.

Yet Stanley Nabi, managing director of Credit Suisse Asset Management in New York, said rising rates, as a cause of stock market malaise, were “a red herring.” He noted that yields on the 10-year note are almost exactly where they were a year ago.

Instead, Nabi said, the stock market is “correcting extremes” by letting air out of some sectors -- particularly technology, biotechnology and telecommunications -- whose valuations have become excessive during the rally that began in March.

Even with Tuesday’s losses, Nasdaq is up almost 32% since March 11.

In other highlights:

* The damage to Costco spread to other discount retailers. BJ’s Wholesale Club fell $1.95 to $17.24; Family Dollar Stores lost 77 cents to $37.30; and Dollar Tree Stores dipped $1.08 to $35.80.

* Managed-care companies fell on concern that competition may lower premium rates and hurt profits. Oxford Health Plans fell $3.26 to $39.06; Health Net, which reported an increase in second-quarter profit, sank $2.80 to $30.40; and Aetna dropped $4.29 to $57.67.

* Waste Management gained 83 cents to $24.65 after saying it planned to pay an annual dividend of at least 75 cents a share, starting next year. The company also reported that second-quarter profit fell 19% to $176 million.

* Emerson Electric dropped $1.51 to $52.30. The world’s biggest maker of power supplies for telecom equipment reported fiscal third-quarter net income of $360 million, or 85 cents a share. The St. Louis-based company was expected to earn 74 cents, according to Thomson First Call.

Bloomberg News was used in compiling this report.

Market Roundup, C6-7