Stocks closed lower after a string of reports indicated that the economy is stronger than expected and raised concerns that the Federal Reserve might be more likely to hike interest rates next year.
The Dow Jones Industrial Average finished down slightly, as did the S&P 500 and Nasdaq Composite.
There has been speculation that Fed policymakers might be ready to cut interest rates because the economy appeared to be moderating on course. However, investors believed that better-than-expected reports that measured existing home sales, consumer sentiment, and manufacturing in the Midwest lessened the possibility of a cut
This caused a sell-off in the bond market, and stifled a stock market surge that pushed the Dow Jones industrials past the 12,500 mark for the first time.
Still, the fact there wasn't a big drop in stock prices could be a sign that investors are still pretty positive, analysts said. With thin volume typical for the week between Christmas and New Year, the real response could come next week when most of Wall Street gets back from vacation.
Investors Still Bullish
"You'd expect some kind of correction after these reports, and the fact we're not getting one shows Wall Street is pretty bullish," said Ryan Detrick, equity analyst at Schaeffer's Investment Research. "With the market going up, and not too many sellers out there, we could stay at these levels until we get back next week."
Despite the drop during the session, major indexes are heading toward double-digit gains for the year. The Dow is now up 16.6% this year, while the Nasdaq has risen 10% and the S&P 500 is up 14.1%.
Bond yields have fallen to record lows in the past few months, but began to rebound on Wednesday after the better-than-anticipated report on new home sales suggested the housing slump could be at the bottom of its decline. It was the first sign this week the economy might be expanding instead of moderating.
The Nasdaq was hurt by worries about options grants at Apple Computer. The Financial Times reported the company gave Chief Executive Steve Jobs 7.5 million stock options in 2001 without the required authorization of the company's board.
Google wasamong the biggest laggards on the next-to-last day of trading in 2006.
Europe Can't Hold Gains
London's FTSE-100 , the Frankfurt-DAX and the Paris CAC-40 all started the day higher, but finished mostly flat with little economic or corporate news to tempt buyers.
Vodafone approached Indian company Hutchison Telecom, offering $17 billion to $18 billion for its majority stake in mobile company Hutchison Essar, the Financial Times reported. But Essar, which owns 33% of Hutchison Essar, is interested in taking control of the mobile business itself and has approached Vodafone about a possible deal, the Times of India said.
In Russia, prosecutors said they are investigating the possibility that the former owner of oil company Yukos is linked to the radiation poisoning death of former Russian intelligence agent Alexander Litvinenko. A spokesman for former Yukos chief Leonid Nevzlin called the claims "ridiculous," according to Reuters. Nevzlin now lives in Israel.
And the U.S. Department of Transportation said Wednesday that it had initially rejectedVirgin America's application to fly because the company does not meet the requirement for a carrier to be 75%-owned or controlled by U.S. citizens.
Australia Strong Again
Asian markets were higher Thursday with Australian stocks continuing their record-breaking run.
Fresh record highs for the Dow pushed the Australian share market up for the third day running, with dealers saying they expect the market to hold its gains in the next few weeks and 2007 to be another good year for the Australian stocks.
The Nikkei 225 Average closed almost flat as Nippon Steel and its peers drew buyers, while Canon and other recent gainers fell on concern that their prices may have advanced too quickly.
South Korea's Kospi Index ended higher on a bright outlook for next year's economic fundamentals and company earnings as well as tracking firmer U.S. stocks.
In late afternoon trading, Hong Kong's Hang Seng Index topped the 20,000-point threshold for the first time, riding persistent optimism over Chinese stocks. Singapore stocks also ended higher.