Early rally reverses as market awaits Fed

NEW YORK - Markets gave up a big advance and turned lower yesterday as investors suffered renewed jitters ahead of the Federal Reserve's meeting on interest rates this week.

Investors, who have seen huge swings in recent weeks, initially were relieved to hear from the National Association of Realtors that existing-home sales declined in May by only 0.3 percent, to 5.99 million units. The tepid reading was expected, and indicated the housing sector was still weak.

But the data were not enough to keep the stock market afloat; when crude-oil prices rose a bit on news of U.S. refinery outages, many investors chose to take money off the table. High energy prices could translate into 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 tomorrow and Thursday.

The Dow Jones industrial average fell 8.21, or 0.06 percent, to 13,352.05, after rising more than 100 points earlier in the day. The Standard & Poor's 500 index fell 4.82, or 0.32 percent, to 1,497.74, and the Nasdaq composite index lost 11.88, or 0.46 percent, to 2,577.08.

A retreat in Treasury yields failed to calm the stock market yesterday. The 10-year Treasury note's yield fell to 5.08 percent from 5.14 percent late Friday, dampened by worries about mortgage-backed securities. If high-risk investments are souring, investors tend to buy safer Treasury issues.

Officials are widely expected to keep the Fed's benchmark interest rate steady at 5.25 percent Thursday, but Wall Street is unsure whether the central bank will alter its stance on inflation, which could mean a rate increase or decrease later in the year.

Today, investors will scrutinize the Conference Board's June consumer confidence index and the Commerce Department's report on May new-home sales. So far, despite the weak housing market, the economy appears to be on the rebound.

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

Yesterday, the dollar rose against the euro and pound but fell against the yen. Gold prices fell.

Crude-oil futures rose 4 cents to settle at $69.18 a barrel on the New York Mercantile Exchange. Gasoline futures also advanced, reigniting worries that pump prices could bounce back above $3 a gallon. U.S. retail gasoline prices have retreated to an average of $2.978 a gallon yesterday, below the record high of $3.227 reached in late May, according to AAA and the Oil Price Information Service.