Oct. 3 (Bloomberg) -- U.S. stocks failed to sustain early gains as investors read evidence of a pickup in manufacturing and raw-material prices as a sign the Federal Reserve won't stop raising interest rates any time soon.

``People are focusing on the fact that with that strength you're going to see continued support for higher rates,'' said Caryn Zweig, who helps manage $600 million at Abner, Herrman & Brock Inc. in Jersey City, New Jersey. ``The Fed would be more inclined to not go on hold here.''

Companies such as 3M Co. and Alcoa Inc., whose earnings depend largely on economic growth, sent the Dow Jones Industrial Average to its first loss in six days.

The Dow average fell 33.22, or 0.3 percent, to 10,535.48. The benchmark gained the final five days of the third quarter. The Standard & Poor's 500 Index lost 2.11, or 0.2 percent, to 1226.70.

A rally in computer-hardware shares including Sun Microsystems Inc. buoyed the Nasdaq Composite Index, which added 3.74, or 0.2 percent, to 2155.43.

Today's retreat followed gains in the third quarter. The Dow average rose 2.9 percent and the S&P 500 climbed 3.1 percent in the three months ended Sept. 30. The Nasdaq jumped 4.6 percent.

Selloff

The Dow average and the S&P 500 retreated from early gains after the Institute for Supply Management said its factory index showed unexpected expansion in manufacturing in September. The two indexes rose as much as 0.4 percent before the report.

Manufacturing accelerated to 59.4 from 53.6 in August. Readings greater than 50 indicate growth. Economists expected a reading of 52 in a Bloomberg News survey.

The institute's prices paid index, which measures how much companies pay for raw materials and supplies, rose to 78 in September from 62.5 for the biggest jump in 15 years.

Last month the Fed signaled it will maintain its ``measured'' pace of interest-rate increases to keep inflation under control and today's report bolstered expectations it won't change that stance this year. The 10-year Treasury note's yield rose 0.06 percentage point to 4.39 percent, the highest since Aug. 10, according to Cantor Fitzgerald LP.

``Today it's all about rates,'' said Todd Clark, director of trading at Nollenberger Capital Partners in San Francisco. ``That was a much better-than-expected ISM manufacturing number. That clearly caught people off guard.''

Gauges of materials and industrial companies declined 0.4 percent and 0.5 percent respectively on concern the Fed's actions will slow economic growth.

3M, the maker of more than 50,000 products ranging from software to Scotch tape, lost 83 cents to $72.53. Alcoa, the world's largest aluminum maker, slid 55 cents, or 2.3 percent, to $23.87 for the worst performance in the Dow average. Boeing Co., the No. 2 commercial-aircraft maker, fell 81 cents to $67.14.

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: October 3, 2005 16:14 EDT