MARKET CLOSE: Falling bond prices drag stocks lower

Internet stocks made modest gains in choppy trading Thursday but the Nasdaq composite closed off 15 points to 2,549.50. The Dow Jones industrial average inched up 2 points to 10,789.39.

The Dow was up more than 100 points at one point, before bond prices plunged on the July retail sales report.

Investors were put off by a stronger-than-expected July retail sales report. Sales rose 0.7 percent last month, compared with a 0.3 percent gain expected by economists. The June sales rate was revised downward to a decline of 0.2 percent, from the 0.1 percent gain first reported.

"We had a good rally yesterday and what we see here is a continuation of yesterday's rally," said Peter Cardillo, director of research at Westfalia Investments. "And surprisingly enough, the bond market took retail sales in stride. They're more interested in the bond sale this afternoon."

Though its far from bad news, the index does indicate a booming economy, and is likely to be factored in to the Fed's decision on interest rates, along with the report on jobless claims. The Labor Department said Thursday that first-time jobless claims in the last week rose to 284,000, up 4,000 from the prior week, but below the 294,000 expected by economists.

Internet stocks, surprisingly, made decent gains.

America Online Inc. (AOL) added 1/2 to 92 7/8. Yahoo! Inc. (YHOO) rose 5/16 to 128 3/8 while Amazon.com Inc. (AMZN) and Lycos Inc. (LCOS) tacked on 13/16 and 1 5/8 a share, respectively. Excite@Home Corp. (ATHM) rose 3 5/8 to 39 1/16 and Infoseek Corp. (SEEK) closed up 3/16 to 29 9/16.

Among the Internet IPO crew, NetScout Systems Inc. (NTCT) moved up 2 3/4 to 13 3/4 and IXNet Inc. (EXNT) closed unchanged at 15.

PC stocks were falling out of favor after Merrill Lynch's new personal computer analyst Steve Fortuna initiated coverage of Gateway and Micron Electronics with neutral ratings, citing unfavorable industry conditions. Gateway Inc. (GTW) dropped 3/4 to 82 1/2 and Micron Electronics Inc. (MUEI ) chipped off 17/32 to 9 9/16.

Dell Computer Corp. (DELL) lost 2 to 40 1/4 and Apple Computer Inc. (AAPL) picked up 5/16 to 60. Compaq Computer Corp. (CPQ) trimmed 3/16 to 22 3/4 and International Business Machines Corp. (IBM) dipped 2 3/16 to end at 121 1/8.

Healtheon Corp. (HLTH) shot up 4 1/16 to 34 1/8 after itposted second quarter net loss of 25 cents a share, or $17.6 million Thursday, just below First Call's estimated loss of 22 cents a share.

Microsoft Corp. (MSFT) lost 2 7/16 to 81 3/4. Oracle Corp. (ORCL) shed 1 1/4 to 35 1/2 while Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) lost 1/16 and 7/16 a share, respectively.