NEW YORK — Expectations of an interest rate hike in June, coupled with fears over the progress of the war on terror, prompted a steep sell-off on Monday that saw the Dow Jones Industrial Average fall below the 10,000-point level.

Retail and fashion shares ended the day battered with declines of 1 to 3 percent. For most stocks, the day was a roller-coaster ride as investors retreated, regained and then retreated again.

Coach, for example, opened at $41, 30 cents off Friday’s close, and then lost 51 cents in early-morning trading. By early afternoon the stock was back up to $41, but then it lost ground again at the end of the day to close at $40.98, down 32 cents.

Monday’s rout was a continuation of the sell-off that began on Friday. None of the three major indices was spared. At Monday’s close, the Dow had shed 127.32 points, or 1.26 percent, to end the trading session at 9,990.02, and it fell as low as 9,932.74 in intraday trading. The Nasdaq Composite Index was off by 21.89 points to close at 1,896.07, and the S&P 500 Index fell by 11.58 points to end the day at 1,087.12.

But there were a handful of stocks in the retail and apparel universe that managed to repel the sell-off, such as Wal-Mart, which gained $1.32 to close at $55.22 on the Big Board.

Among the other winners trading either on the New York Stock Exchange or the Nasdaq were: Federated Department Stores at $46.70, up 10 cents; Kohl’s Corp., $42.18, up 50 cents; May Department Stores, $28.78, up 28 cents; Charlotte Russe, $16.92, up 4 cents; Dress Barn, $16.23, up 17 cents; Gap Inc., $22.05, up 5 cents; Too Inc., $16.70, up 64 cents; ShopKo Stores, $12.60, up 38 cents; Target Corp., $43.55, up 29 cents, and TJX Co. Inc., $23.55, up 2 cents.

Apparel firms that avoided declines, included: Reebok Int’l Ltd., $34.85, up 43 cents; Tommy Hilfiger Corp., $15.14, up 43 cents, and VF Corp., $44, up 10 cents.

Carl Steidtmann, chief economist at Deloitte Research, described the market gyrations of the last few days as a “readjustment of valuations reflecting higher interest rates, and discounting the U.S. as a source of stability because of what’s going on in Iraq. There is a fear that we are actually losing the war on terror.”The economist pointed out that the Federal Reserve’s primary responsibility is price stability. With a mild acceleration in inflation — reflected in higher prices such as that for a gallon of gas and cab fare increases in New York — and a host of indicators suggesting that inflation over the next 12 months will be higher than what it was in the past 12 months, Steidtmann predicted that the Fed will raise rates in June.

“We’re starting to see inflation, which is like weight gain. It sort of sneaks up over you. It is easier to put on than take off. The problem then becomes one of price stability….The first Fed increase won’t be the last and will start with a quarter-of-a-point increase,” the economist said.

He said there could be another increase in August, followed by a third hike after the elections in November.

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