Bank stocks and Treasury bonds tumbled Tuesday, amid optimism over the economy.
The index in the monthly report of the National Association of Purchasing Management rose from 45.7% to 50.5%, much higher than analysts had expected. Economists say the 50% level suggests a "vibrant economy."
The rise lent strength to the view that the Federal Reserve will not lower interest rates again to revive the economy - a sentiment that depressed the price of Treasury bonds. Treasury bonds perform well in a low-rate environment.
Stock prices of banks, which are also considered rate-sensitive, also sank. The Standard & Poor's index of major banks slumped 0.62%, while the overall S&P declined 0.43%.
Chase Manhattan Corp. fell 75 cents to $52.875, after dropping $1.375 Monday. Rumors of an impending merger with Chemical Banking Corp. appeared to have cooled, at least temporarily.