AT&T Inc. and Exelon Corp. led losses in telephone companies and utilities, which pay the biggest dividends among 10 industry groups in the Standard and Poor's 500 Index. Bed Bath & Beyond Inc., the largest U.S. home-furnishings chain, posted the steepest fall in the S&P 500 after it said earnings will trail its forecast.
Bond yields rose after the Institute for Supply Management said U.S. service industries grew last month at the fastest pace in more than a year. The two-year Treasury note's yield touched 5 percent for the first time since August and has gained in 16 of the last 20 sessions.
``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 9.97, or 0.7 percent, to 1529.21 as of 2:57 p.m. in New York. All 10 of the index's main industry groups declined. The Dow Jones Industrial Average retreated 101.18, or 0.7 percent, to 13,575.14. The Nasdaq Composite Index lost 14.24, or 0.5 percent, to 2604.05.
Services
The ISM'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.
Elsewhere, Federal Reserve Chairman Ben S. Bernanke said tighter lending standards for mortgages will ``restrain housing demand, although the magnitude of these effects is difficult to quantify.'' He said core inflation remains somewhat elevated, though officials have seen a ``gradual ebbing.'' He 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 almost 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 almost 0.05 percentage point to 4.97 percent.
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. ``There is a point where the cost of money gets so expensive that people are unwilling to do leveraged-buyout deals, that companies are unwilling to buy back their stock.''
About $1.1 trillion of announced mergers and acquisitions and more than $330 billion of company share buybacks this year have helped propel the S&P 500 and Dow average to all-time highs.
AT&T, the largest U.S. phone company, lost 64 cents to $40.26. Exelon, the biggest utility owner by market value, slipped $1.20 to $74.29.
Utilities in the S&P 500, which have an average dividend yield of 2.94 percent, dropped 1.2 percent as a group. Telephone shares, with an average yield of 2.96 percent, slipped 1 percent.
Bed Bath & Beyond
Bed Bath & Beyond lost $2.35, or 5.8 percent, to $38.12. Earnings for the three months that ended June 2 will be about 36 cents to 38 cents a share, less than the 39 cents the company forecast in April and 2 cents below analysts' estimates.
Ciena Corp. dropped $1.72, or 4.9 percent, to $33.14 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.
Openwave Systems Inc. plunged $1.73 to $8.64. The mobile- phone software maker rejected a $335 million offer from Harbinger Capital Partners to buy a controlling interest, saying the offer is ``inadequate.''
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 $5.62, or 5.9 percent, to $100.23.
Amazon.com Inc. surged $3.33, or 4.7 percent, to $73.75 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 37 cents to $60.53. 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 32 cents to $17.04 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.
About nine stocks fell for every two that gained on the New York Stock Exchange. Some 1.1 billion shares changed hands, 6.2 percent more than at the same time last week.
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