MARKET ERASES MOST OF LOSS; DAY'S STEEP DECLINE BLAMED ON SOARING INTEREST RATES FOR BONDS.

Byline: Patricia Lamiell Associated Press 

Stocks finished with only modest declines Thursday after recovering from a steep slide sparked by a third straight day of surging interest rates in the bond market.

The Dow Jones industrial average closed 33.33 points lower at 9,366.34 after bargain hunters shrank a loss of 166 points during the final hour of trading. The late recovery wasn't enough, however, to prevent the Dow's first three-session losing streak in a month.

Broader stock indicators also staged a partial rebound after plunging with the bond market, which has been rattled by fears the Federal Reserve might boost interest rates to slow the economy and contain inflation.

Thursday's bond losses came as three new reports were released demonstrating the economy's surprising strength. The data followed by just one day a warning by Federal Reserve Chairman Alan Greenspan that the central bank stands ready to raise interest rates unless domestic economic growth slows this year.

The early stock rout came as the price of the benchmark 30-year Treasury bond dropped $15.63 for every $1,000 in valuation. Its yield, which moves opposite the price, hit another six-month high, rising to 5.62 percent from 5.51 percent on Wednesday.

``Now that bonds aren't on our side, the (stock) market found it impossible to push onward,'' said Bryan Piskorowski, a market analyst at Prudential Securities.

The rise in rates caused market bulls to question a bedrock premise. For years, equity prices have risen on the assumption that low interest rates, by encouraging consumers to borrow and spend, would keep the economy and corporate earnings humming.

Lower rates also would encourage investors to keep buying stocks rather than lower-yielding bonds.

Stocks have risen in the new year even as it became clear that corporate earnings had weakened in the fourth quarter. Some analysts said the higher stock prices were justified because inflation was almost nonexistent and interest rates were low.

But the lack of earnings power made stock prices more vulnerable than usual to interest-rate increases such as the one that occurred Thursday, said Gail Dudack, chief equity strategist at UBS Securities.

Over the past six months, ``we've lost the earnings momentum that could drive stocks higher, so as a result, we're much more dependent on other factors, like lower interest rates,'' she said. ``When you see the long bond move above 5.5 percent, it shouldn't be a surprise; it puts a lot of pressure on equities.''

The stock market's losers cut a wide swath through the market. But analysts said so-called ``growth stocks,'' such as technology shares, were most adversely affected by higher interest rates.