US stocks lost ground over the past week as investors showed fresh jitters over an economic slowdown from Hurricane Katrina and positioned for the Federal Reserve's decision Tuesday on interest rates.
In the week to Friday, the blue-chip Dow Jones Industrial Average dipped 0.34 percent to 10,641.94 while the Standard and Poor's 500 broad-market index shed 0.29 percent to 1,237.91.
The tech-heavy Nasdaq composite gave back 0.7 percent in the week to end Friday at 2,160.35.
A two-week string of gains ended with the market becoming more prudent about the possibility of an economic slowdown linked to Hurricane Katrina, even though the data reflected little of the impact from the storm and its floods.
"The market just got a little ahead of itself. There was a tremendous rally in spite of all the destruction of Katrina," said Todd Leone, head of listed trading at SG Cowen.
Markets were cautiously awaiting the Fed decision on interest rates -- with most analysts expecting the central bank to lift rates for an 11th consecutive time by 25 basis points to 3.75 percent.
"Rates will either rise 25 basis points, as we expect, or less likely, the Fed could hold off on a hike now, but promise one for November," said Avery Shenfeld at CIBC World Markets.
"Though we think this could be the last rate move, it's too soon for the Fed to hint of that shift given the limited picture of the post-Katrina economy now available. Watch for a huge jump off the scale in initial jobless claims as displaced workers file for benefits, and for further news on oil and gasoline inventories and on the extent of damage to Gulf [of Mexico] production prospects."
Brian Wesbury at Claymore Research said a Fed rate hike would be a positive sign for Wall Street.
"If the Fed were to pause, the market would take it as a sign that something was terribly wrong with the economy. By hiking rates, the Fed will signal confidence in the post-Katrina economy," Wesbury said.
"We believe this will be taken by the markets as a sign of economic strength. As a result, we do not believe a rate hike will be negative for the equities markets."
But Bob Doll at Merrill Lynch said Wall Street still must come to grips with a slowing economy and weaker profits, as well as higher interest rates.
"Whether the Fed raises rates at its next meeting on September 20 or not, we doubt that a market-friendly statement will accompany the announcement. Rather, we believe that it will take several months of economic weakness or some sort of market accident for the Fed to change its direction," Doll said.
"In our view, the main risk for equity markets is the trend for slowing profit growth, which we believe has the potential to undermine some of the optimism currently in the market ... The bright side to this view is that such an environment could create some buying opportunities for equity investors."
Bonds fell as the market braced for the Fed and looked past the Katrina-related economic weakness. The yield on the 10-year US Treasury bond rose to 4.262 percent from 4.123 percent a week earlier and that on the 30-year bond increased to 4.555 percent from 4.402 percent. Bond yields and prices move in opposite directions.