03:53 PM CDT on Monday, May 22, 2006

Associated Press

NEW YORK – Wall Street showed some signs of stability late Monday, posting a moderate decline after falling sharply early in the session in response to tumbling commodities prices. The Nasdaq composite index was hit hard as technology stocks fell out of favor with risk-averse investors.

U.S. stocks managed a comeback – including a brief foray into positive territory by the Dow Jones industrials – shortly before the close. But with the outlook for inflation and interest rates still unclear, traders were nervous about buying stocks affected by the sliding price of gold and other metals, as well as riskier investments such as tech issues. And so it wasn't certain whether stocks could continue to steady themselves when trading resumed Tuesday.

The retreat in commodities overshadowed a rebound in bonds and a recovering U.S. dollar. "This is essentially a classic tug of war between real assets and financial assets," said Jack Ablin, chief investment officer of Harris Private Bank.

Stocks built on losses that began May 10 amid fears that inflation will bring higher interest rates; the decline has sent the Dow tumbling more than 4 percent since then. While the market has been hoping for lower oil and gold prices to help ease inflation, analysts say overly optimistic investors had bid stocks higher earlier this spring and now aren't ready to start buying again.

"What needs to happen is investors need to start discerning what's risky and what's not," Ablin said. "Right now, they're just busy selling without any regard for quality."

According to preliminary calculations, the Dow fell 18.73, or 0.17 percent, to 11,125.33, after tumbling as much as 103 points earlier.

Broader stock indicators recouped some earlier losses. The Standard & Poor's 500 index lost 4.96, or 0.39 percent, to 1,262.07; the Nasdaq dropped 21.02, or 0.96 percent, to 2,172.86, a sign of Wall Street's diminishing faith in the volatile tech sector.