Curse of low rates. (Investments & Finance).

IN a world where somebody complains about everything, low interest rates enjoy a rare exemption.

Interest rates are low all right -- as low, in many cases, as the current generation of borrowers, lenders, savers and spenders has ever seen. Rates have been low for a couple of years, since a barrage of 11 cuts by the Federal Reserve in 2001.

That's long enough for a thorough look at them from all sides. Yet we seldom see the situation portrayed in public forums as anything but a good thing. Renegotiate your mortgage! Buy a car! Float a municipal bond issue! Imagine how bad our struggling economy might have gotten if money weren't so cheap.

There's no disputing these positives. Ask anybody who knows, and they'll tell you low rates promote economic health. But that simple view leaves untold another side of the story, the stresses and strains occasioned by low interest rates.

Consider the role low rates have played in the underfunding of pension plans - a concern that now clouds prospects for earnings recovery at many businesses, especially large ones.

"While declining asset values have been discussed widely as a significant contributor to the current dilemma, record-low interest rates have had a greater impact," says a report from the pension advisory firm of R.G. Wuelfing & Associates in Simsbury, Conn.

Pension plans put a lot of money in interest-bearing investments. The lower the rate," Wuelfing says, "the more funding is required to fulfill future obligations. If plan sponsors start changing their assumptions this year, the underfunding situation will worsen and we will see the need for significant contributions again in 2003."

Another downer about low interest rates is their close association in everybody's mind with persistent economic weakness and the threat of deflation.

As the yield on 10-year Treasury notes sagged below 3.6 percent in early March, its chart seemed to be practically shouting "no demand!" When it bounced back above 4 percent a couple of weeks later, you could almost hear a sigh of relief.

Indeed, in the period of that rate rise from March 10 through March 23, two primary measures of the stock market, the Standard & Poor's 500 Index and the Nasdaq Composite Index, each jumped 11 percent.

Assigning cause and effect in such cases can be tricky. Those days marked the buildup and start of the war in Iraq, and investors had plenty on their minds besides interest rates. Nevertheless, in that stretch stocks showed they were ready and able to climb in parallel with rising rates.

It wouldn't be at all surprising, then, if a renewed rise in rates were accompanied by further gains in stock prices. To be sure, if a sustained rise in rates occurred, it would raise many questions for the progress of economic and stock-market recovery. What happens to housing and consumer spending when the mortgage-refinancing boom fades? Will a shift in the yield curve that measures rates over various time spans expose some weakness in the financial system?

How eager will investors be to shift cash parked in money funds back into stocks once they notice money-fund yields on the rise?

Furthermore, any meaningful increase in rates is bound to be accompanied by concern that renewed inflation will result from all the stimulus of the past couple of years.

So, OK, higher interest rates won't serve as an unmixed blessing for either the stock market or the economy. Don't .be surprised, though, if they draw few cheers.