Uni-Media Press

Even the prospect of interest rates staying low couldn’t keep buyers in the stock market.

Stocks ended little changed Monday, having given back a brief afternoon gain that followed comments from Federal Reserve Chairman Ben Bernanke. The Fed chief said unemployment and other problems would hold the economy to “moderate” improvements and that rates are likely to remain low.

Bernanke’s remarks sent the dollar down because low rates make a currency less attractive, and that gave stocks a boost since a lower dollar can add to profits for U.S. companies that do business overseas. The market’s gains evaporated later, however, as the dollar pared its losses.

Dan Deming, a trader with Stutland Equities, said there were simply too few buyers on a day with little new news to keep the upward momentum going.

“It just feels like it’s drifting,” he said. “The market feels tired.”

The fatigue comes as traders find few answers to questions about what investments will be strong in 2010 following the big run in stocks and commodities this year. Many investors have closed their books on the year and are wondering whether incremental improvements in the economy will be able to support more stock market gains next year.

The day’s back-and-forth trading followed a brief spike Friday, when a strong jobs report for November provided one of the best signs yet that the economy is recovering. The Labor Department said employers cut fewer jobs than at any time since the recession began at the end of 2007, while the unemployment rate dropped to 10 percent from 10.2 percent.

Stocks jumped Friday after the employment report but later gave up most of those gains as traders started to question whether the signs of recovery in the economy would lead to higher interest rates. Some analysts say the market overreacted in predicting that rates were due to rise, however.

“We have a slowly recovering economy,” said Robert MacIntosh, chief economist at Eaton Vance Management. “I don’t think you need to worry about the Fed changing their mind and raising rates anytime soon.”

The Dow Jones industrial average rose 1.21, or less than 0.1 percent, to 10,390.11 after being up 54 points and down 29 points. On Friday, the Dow ended with a gain of 23 points after having been up as much as 151 points following the unemployment report.

The broader Standard & Poor’s 500 index fell 2.73, or 0.3 percent, to 1,103.25. It’s up 22.1 percent for the year.

The Nasdaq composite index fell 4.74, or 0.2 percent, to 2,189.61.

The dollar fell against other major currencies as Bernanke spoke to the Economic Club of Washington, but pulled off its lows in the afternoon, leaving the ICE Futures US dollar index down 0.2 percent.

Gold fell but ended well off its worst level. Oil dropped $1.54 to settle at $73.93 a barrel on the New York Mercantile Exchange.

Bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.43 percent from 3.48 percent late Friday.

Low interest rates and the resulting slide in the dollar have helped fuel the stock market’s advance since March. The weak dollar has encouraged investors to buy stocks, commodities and other higher-yielding assets.

Tom Higgins, chief economist at Payden & Rygel Investment Management, said stocks will still climb when the Fed raises rates because the move will be such a strong sign of an improving economy that investors will be willing to take on more risk.

Higgins doesn’t expect rates will go up soon, however, because the economy still needs supports to build a sustained recovery after a long period of excess debt and too little savings.

“We’re starting to pay for those past deeds and the government is providing us with a little bit of aspirin to help,” he said.

In other trading, the Russell 2000 index of smaller companies rose 0.77, or 0.1 percent, to 603.56.

Rising stocks outpaced those that fell 8-to-7 on the New York Stock Exchange, where consolidated volume came to 4.2 billion shares compared with 6 billion Friday.

Overseas, Britain’s FTSE 100 fell 0.2 percent, Germany’s DAX index fell 0.6 percent, and France’s CAC-40 fell 0.2 percent. Japan’s Nikkei stock average rose 1.5 percent.

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Americans borrowed less for a record ninth straight month in October, another sign that consumer spending will remain weak, making it harder for the economy to mount a sustained rebound.

Consumer credit fell at an annual rate of $3.51 billion in October, the Federal Reserve said Monday. Economists expected a $9.3 billion decline.

Demand for revolving credit, the category that includes credit cards, fell 9.3 percent, while borrowing in the category that includes auto loans rose at an annual rate of 2.6 percent.

Americans are borrowing less as they try to replenish depleted investments. Many are finding it hard to get credit as banks, hit by the worst financial crisis since the 1930s, have tightened lending standards.

The 2.6 percent rise in the category that includes car loans reflected a rebound in auto sales in October after a sharp September drop. That decline followed a surge in August auto sales as consumers rushed to take advantage of the government’s Cash for Clunkers incentives before they expired.

Some analysts said the smaller-than-expected decline in borrowing could be a sign that consumers are cautiously moving toward increased spending in some areas, which would be a good sign for the economy going forward.

“Consumers appear to be willing to go out and make big-ticket purchases such as for cars and that is better than things were looking this summer,” said David Wyss, chief economist at Standard & Poor’s in New York.

While economists have worried for years about the low rate of U.S. savings, the concern is that consumers could derail the recovery if they start saving too much of their incomes. Consumer spending accounts for 70 percent of total economic activity.

Wyss still expects growth in consumer spending to remain modest, meaning that the overall economy will grow at subpar rates in coming quarters. He sees the overall economy, as measured by the gross domestic product, growing at a lackluster 1.9 percent rate in the current quarter, down from the 2.8 percent rate in the July-September period. That’s largely because he expects consumer spending to slow from the third-quarter pace.

Consumers have been reluctant to spend in large part because the labor market has been so weak. The government reported Friday that the unemployment rate actually improved slightly in November, dropping to 10 percent, after hitting a 26-year high of 10.2 percent in October.

Analysts, however, cautioned that they expect the jobs recovery to remain lackluster in coming months because the overall economy will be growing at rates that are too modest to support solid growth. Many analysts believe the unemployment rate will resume rising in coming months, hitting a peak of around 10.5 percent, by next summer before starting to improve.

Federal Reserve Chairman Ben Bernanke said Monday that it was still too soon to know whether the economic rebound from the recession is sustainable. He again pledged to hold interest rates at record-low levels for an extended period.

The 1.7 percent fall in overall consumer borrowing left that total at an annual rate of $2.48 trillion in October. The $3.51 billion fall in October followed a decline of $8.77 billion in September.

The 9.3 percent plunge in the credit card category followed drops of 10.5 percent in September, and 10.6 percent in August. In all, credit card borrowing has fallen for a record 13 straight months.

The 2.6 percent rise in the category that includes auto loans followed a 0.6 percent drop in September.

According to sales results released last week, a diverse group of stores including Macy’s Inc., Saks Inc., Abercrombie & Fitch Co. and Target Corp. posted sharper-than-expected sales declines in November, translating into a rocky start for the holiday shopping season.

The Fed’s credit report excludes home loans and home equity mortgages, only covering borrowing that is not secured by real estate.

The previous record of seven consecutive consumer borrowing declines was set in 1943 and again in 1991.

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