- The Washington Times - Tuesday, June 20, 2006

From combined dispatches

Stocks failed yesterday to break out of their latest slump on concern that a rebound in housing starts will pave the way for higher interest rates.

The Standard & Poor’s 500 Index slid for a third day as a rally triggered by better-than-expected earnings from Kroger faltered.

Standard Pacific led losses among home builders after a report showed construction rose from a 13-month low in May. The pickup triggered speculation that the Federal Reserve will keep raising rates.

“There is concern certainly that the Federal Reserve, which has a history of overshooting, could get it wrong,” said Barbara Marcin of Gamco Investors. “That’s why the market is largely ignoring what is very good economic and earnings news.”

The S&P; 500 lost 0.02 to 1240.12 for its smallest move since January. The index is down 6.5 percent from a five-year high reached last month to give it a 0.7 percent decline for 2006. The Dow Jones Industrial Average gained 32.73, or 0.3 percent, to 10,974.84, as Caterpillar Inc., a construction-equipment maker, gained. The Nasdaq Composite Index lost 3.36, or 0.2 percent, to 2107.06.

The Russell 2000 Index of smaller companies fell 3.26, or 0.48 percent, to 677.50.

Kroger’s stock had its biggest advance in a year and sparked gains among makers and sellers of so-called consumer staples, including food, beverages and household products. The group’s rally limited market losses.

The market has come under pressure the past six weeks because of speculation the Fed will go too far in boosting rates to fight inflation and send the economy into a recession.

Yields on two-year Treasuries rose two basis points to 5.19 percent, increasing for a fifth day. Ten-year Treasury yields rose two basis points to 5.15 percent.

Indexes drifted most of the day as investors deciphered what the housing report will mean for the rate outlook.

Kroger jumped $1.01, or 5.2 percent, to $20.47 for the largest one-day gain in a year. Quarterly profit, excluding legal costs, increased to 45 cents a share, exceeding estimates. Same-store sales will climb 4.5 percent in the fiscal year ending in February, as the supermarket benefits from shorter checkout times and higher sales of organic foods.

A gauge of consumer staples rose 0.7 percent for the best performance among 10 industry groups in the S&P; 500. During the index’s fall from the May high, consumer staples lost just 0.6 percent, the second-best performance in the index, behind a 0.2 percent gain by phone shares.

Caterpillar climbed $1.04 to $70.99. Sales last month were “surprisingly strong,” JPMorgan analyst Gary McManus wrote.

Sales of engines in May surged 18 percent, the most since September 2005, he said. The gains came from the oil and industrial markets.

About four stocks fell for every three that rose on the New York Stock Exchange. Some 1.5 billion shares changed hands on the Big Board, about 12 percent less than the three-month average.

Home-building shares slumped as investors looked past the housing starts data and bet further increases in mortgage rates may hurt sales. Standard Pacific, which builds houses in California, Texas, Arizona and Colorado, had the biggest drop in an S&P; measure of 16 home builders. The shares fell 84 cents, or 3.3 percent, to $25.01. Toll Brothers Inc., the largest U.S. luxury-home builder, fell 49 cents to $26.05. D.R. Horton Inc., the No. 1 by market value, lost 61 cents to $23.40.

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