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Stocks fall as Treasury yield rise; Yum slumps

Steve Rothwell, AP Markets Writer

FILE - In this Wednesday, July 31, 2013, file photo, trader Michael Urkonis works on the floor of the New York Stock Exchange. Hopes over the European economy coupled with a strong bounce-back in Japan's Nikkei stock index shored up markets Tuesday, ahead of key U.S. retail sales data that could have a bearing on when the Federal Reserve starts to rein in its monetary stimulus. (AP Photo/Richard Drew, File)

NEW YORK (AP) -- The stock market fell Tuesday as a rise in Treasury yields pushed down interest-rate sensitive stocks such as homebuilders, utilities and phone companies.

The yield on the 10-year note climbed close to its highest in two years amid signs that that Europe will emerge from its recession.

Homebuilders slid on concern that mortgage rates will climb, curbing a recovery in the housing market. The stocks of phone companies and utilities that typically pay big dividends also fell. These stocks have slumped as Treasury yields have climbed, diminishing their appeal as alternative assets that give investors high income.

"You're seeing the 10-year yield move higher," hurting interest-rate sensitive stocks, said Quincy Krosby, a market strategist at Prudential Financial.

Airline stocks slumped after the Justice Department and a number of state attorneys general challenged the proposed merger between US Airways Group and American Airlines' parent company, AMR Corp. US Airways fell $1.92, or 10.2 percent, to $16.90.

The Dow Jones Transportation average dropped 0.8 percent, far more than other indexes.

Investors were also disappointed by a report on retail sales last month that came in weaker than they expected.

Retail sales increased 0.2 percent in July from June, the Commerce Department said Tuesday. Sales had risen 0.6 percent in June from May boosting hopes that stronger consumer spending could boost economic growth. The increase was slightly below the 0.3 percent that economists had forecast, according to data provider FactSet.

The Dow Jones industrial average was down 25 points, or 0.2 percent, at 15,395 as of 11:30 a.m. Eastern Daylight Time.

The Standard & Poor's 500 index was down a point, less than 0.1 percent, at 1,688. The Nasdaq composite fell four points, or 0.1 percent, to 3,666.

The S&P has lost 1.2 percent since hitting an all-time high of 1,709 on Aug. 2. Disappointing second-quarter corporate earnings reports have prompted investors to send stock prices lower this month.

The index is still up 18 percent for the year on optimism that the housing market will recover and hiring will pick up.

In government bond trading, the yield on the 10-year Treasury note rose to 2.71 percent from 2.62 percent Monday. The yield is used as a benchmark to set interest rates on many kinds of loans including home mortgages.

In commodities trading, the price of oil rose 2 cents, or 0.1 percent, to $106.17 a barrel. Gold dropped $8, or 0.6 percent, to $1,326 an ounce.

European markets rose broadly following news that industrial production rose in the region in June. A German survey of investor confidence also came in better than analysts had expected.

The dollar rose against the euro and the Japanese yen.

Among stocks making big moves:

— PulteGroup fell 49 cents, or 3.1 percent, to $15.24, leading a broad decline in homebuilder stocks.

— Yum Brands, which owns the Taco Bell, Pizza Hut and KFC fast-food chains, slumped $2.5, or 3.3 percent, to $72.01 after reporting that its sales in China fell 13 percent in July.

— Xerox rose 26 cents, or 2.7 percent, to $10.42 after the stock was upgraded to "Buy" by analysts at Citigroup. The analysts predict that the company, one of the largest processors of health care claims and payments, will benefit from increased demand due to the Patient Protection and Affordable Care Act, popularly known as Obamacare.

— Steinway fell $1.23, or 3.1 percent, to $38.36 after Bloomberg News reported that private equity firm Kohlberg & Co. had waived its right to negotiate with the piano maker after the company received a superior offer from an unidentified bidder.