June 5 (Bloomberg) -- The U.S. stock market posted its first decline in a week after bond yields surged to a nine-month high amid signs the economy may be gaining momentum.
AT&T Inc. and Exelon Corp. led losses in telephone companies and utilities as higher yields reduced the attractiveness of their dividends. Bed Bath & Beyond Inc., the largest U.S. home- furnishings chain, fell the most in the Standard & Poor's 500 after saying profit will trail its forecast.
Better-than-expected growth in service industries last month sent the two-year Treasury note yield to 5 percent for the first time since August. The stock declines pulled both the S&P 500 and Dow Jones Industrial Average down from records.
``Bond yields are starting to become a little more competition for equities here considering the expectations for economic and earnings growth,'' said Charles White, who helps manage about $1.8 billion as chief investment officer at ThomasLloyd Asset Management in Pleasantville, New York. ``I've got a hard time making a table-pounding case for unexpected upside from these levels.''
The S&P 500 fell 8.23, or 0.5 percent, to 1530.95. All 10 of the index's main industry groups declined. The Dow average retreated 80.86, or 0.6 percent, to 13,595.46. The Nasdaq Composite Index lost 7.06, or 0.3 percent, to 2611.23.
Services
The Institute for Supply Management's index of non- manufacturing businesses rose to 59.7 from 56 in April, the Tempe, Arizona-based group said. Economists surveyed by Bloomberg News had expected a reading of 55.8. Readings above 50 signal growth.
Federal Reserve Chairman Ben S. Bernanke said core inflation remains somewhat elevated, though officials have seen a ``gradual ebbing.'' He also said tighter lending standards for mortgages will ``restrain housing demand, although the magnitude of these effects is difficult to quantify.'' Bernanke spoke via satellite to a conference in Cape Town, South Africa.
Service businesses, which make up almost 90 percent of the economy, are providing enough momentum to overcome the effects of the housing slump, economists said.
The two-year note's yield rose more than 3 basis points, or 0.03 percentage point, to 4.99 percent after earlier climbing to 5 percent. The yield on the 10-year Treasury note gained more than 0.06 percentage point to 4.99 percent at 4:36 p.m. in New York.
Traders who a month ago were convinced the Fed would lower its target for the overnight lending rate between banks at least once by year-end now see almost no chance of that happening, interest-rate futures yields show.
Goldman Sachs Group Inc. dropped its forecast for the Fed to reduce borrowing costs this year because of a resilient labor market and a reacceleration of growth in the industrial sector of the economy.
`Watching Yields'
``Every single one of us is watching yields,'' said Doug Peta, market strategist at J&W Seligman & Co. in New York, which oversees about $20 billion.
A drop in the Fed's benchmark interest rate to 1 percent in 2003 helped spur 14 straight quarters of 10 percent-plus profit growth at S&P 500 companies, the longest streak since 1950. The Fed has since lifted the overnight lending rate to 5.25 percent.
AT&T, the largest U.S. phone company, lost 41 cents to $40.49. Exelon, the biggest utility owner by market value, slipped $1.22 to $74.27.
Utilities in the S&P 500, which have an average dividend yield of 2.95 percent, dropped 1.5 percent as a group. Telephone shares, also with an average yield of 2.95 percent, slipped 0.9 percent.
Bed Bath & Beyond
Bed Bath & Beyond lost $2.20, or 5.4 percent, to $38.27. Earnings for the three months that ended June 2 will be about 36 cents to 38 cents a share, the retailer said, less than the 39 cents the company forecast in April and 2 cents below analysts' estimates.
Ciena Corp. dropped $1.69, or 4.9 percent, to $33.17 for the No. 2 decline in the S&P 500. The maker of computer-network equipment for telephone companies said it plans to sell as much as $500 million in convertible bonds as it prepares to repay older debt.
Whole Foods Market Inc. declined $1.21 to $40.48 after the largest natural-foods grocer said the U.S. Federal Trade Commission will file a lawsuit to block its acquisition of rival Wild Oats Markets Inc.
Wild Oats shares gained 25 cents to $17.16.
Cummins, Amazon
Cummins Inc., a maker of high-powered diesel engines, posted the top gain in the S&P 500 after JPMorgan said May heavy-truck orders climbed more than estimated. The shares added $6.31, or 6.7 percent, to $100.92.
Amazon.com Inc. surged $3.23, or 4.6 percent, to $73.65 for the No. 2 gain in the S&P 500. Banc of America Securities raised its share-price estimate for the world's biggest online retailer to $79 from $62, citing ``strong revenue growth'' and the potential for increased profitability from digital media downloads.
Dow Jones & Co. added 34 cents to $60.50. Rupert Murdoch said he had ``a very long, constructive meeting'' with the company's controlling Bancroft family over his proposal to purchase the publisher of the Wall Street Journal for $5 billion.
Separately, Dow Jones' union said it enlisted billionaire Ron Burkle to explore alternatives to Murdoch's bid in an effort to secure editorial independence at the Journal.
Avaya Inc. climbed 31 cents to $17.03 after the computer- networking company agreed to be acquired by Silver Lake Partners and TPG Inc. for $8.2 billion, or $17.50 a share. That's 4.7 percent more than yesterday's closing price and 28 percent more than before speculation about a purchase surfaced on May 29.
More than 10 stocks fell for every three that gained on the New York Stock Exchange. Some 1.52 billion shares changed hands, 3.2 percent less than the three-month daily average.
The Russell 2000 Index, a benchmark for companies with a median market value of $664 million, dropped 0.8 percent to 848.27. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, lost 0.6 percent to 15,484.29. Based on its decline, the value of stocks decreased by $106.1 billion.
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