June 5 (Bloomberg) -- Most U.S. stocks fell, trimming a third straight weekly gain for the Standard & Poor’s 500 Index, as concern higher borrowing costs will threaten the economic recovery overshadowed a better-than-estimated employment report.

JPMorgan Chase & Co. and Wells Fargo & Co. lost at least 1.5 percent as a majority of traders bet for the first time in months that the Federal Reserve will lift interest rates this year and the central bank’s Janet Yellen said rising bond yields may signal inflation concern. Boeing Co. jumped 4.1 percent, helping the Dow Jones Industrial Average almost erase its 2009 loss, as Bank of America Corp. raised its earnings estimates.

About nine stocks dropped for every seven that rose on the New York Stock Exchange. The Standard & Poor’s 500 Index slipped 0.3 percent to close at 940.09 at 4:04 p.m. in New York. It’s up 4.1 percent in 2009. The Dow added 12.89 points, or 0.2 percent, to 8,763.13 to trim its yearly decline to less than 0.2 percent.

“There was a spike in the number of people who think rates might have to be increased from this week versus last week,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages about $2 billion in San Antonio. “The market might be a little afraid of inflation creeping back in because of what the government has been pumping into the economy. Yellen making those comments was one more reason for the market to go back down.”

Benchmark indexes opened higher after the Labor Department said payrolls fell by 345,000 in May, compared with an average estimate for a decrease of 520,000 jobs in a Bloomberg survey of economists. Speculation the government had underestimated the drop in jobs last month later pushed the S&P 500 down about 1.8 percent from its intraday peak.

Jobs Rumor Refuted

“The rumor was false,” U.S. Labor Secretary Hilda Solis told reporters in a conference call, helping spur a 1.4 percent rebound in the equity benchmark before the declines in banks and commodity shares pulled it lower.

The Labor Department adjusts its count of jobs lost for a so-called birth-death model that estimates businesses formed or folded during the month and therefore not counted in its survey. The model increased today’s report by 220,000 jobs, a “statistical fluke,” according to Miller Tabak & Co. equity strategist Peter Boockvar. The unemployment rate increased to 9.4 percent, the highest since 1983.

“There are, as always, questions surrounding the birth- death model estimations and as that talk continues, people are focusing in on the unemployment rate and the other negative parts of the report,” said Dan Greenhaus, equity analyst at Miller Tabak, in an e-mail.

JPMorgan dropped 2.3 percent to $34.55. Wells Fargo slumped 1.5 percent to $24.72.

Fed Bets

Federal-funds futures contracts on the Chicago Board of Trade show a 70 percent probability the central bank will lift its target rate for overnight bank borrowing to at least 0.5 percent by November after the U.S. economy shed the fewest jobs in May in eight months. Rate-increase odds were 27 percent yesterday.

The central bank’s asset purchases and efforts to extend credit have produced mixed results, helping to both lower borrowing costs while also leading to “its own set of risks and costs,” said Yellen, the president of the Federal Reserve Bank of San Francisco, in remarks prepared for a panel discussion.

Treasury Yield Concern

The yield on benchmark 10-year notes, which influence rates on mortgages and other consumer loans, has climbed more than 1 percentage point since the Fed announced its program to purchase long-term Treasuries in March, reaching 3.8972 percent today. Policy makers next meet June 23-24 and may consider whether to increase their planned purchases of $1.45 trillion of housing- related debt and $300 billion of long-term Treasuries.

DuPont fell the most since March, losing 6 percent to $27. Bank of America cut its rating on the company to “underperform” from “neutral” on concern profit gains next year may be limited by expiring pharmaceutical patents and higher costs.

Newmont Mining Corp. and Barrick Gold Corp. slid more than 4.2 percent. Gold prices dropped 2 percent, the most since April 6, to $962.60 an ounce on reduced demand for the metal as a store of value after the employment figures boosted expectations the worst of the recession may be over.

Boston Properties Inc. tumbled 5.1 percent to $50.32. The co-owner of New York’s General Motors Building boosted the size of its secondary stock sale, saying it will raise about $732 million and use the proceeds for investments and to cut debt.

‘Pretty Fragile’

“We’re still in the early stages of a recovery, but let’s face it, it’s still pretty fragile,” said Gary Wolfer, who helps oversee $1 billion at Univest Wealth Management & Trust Services in Souderton, Pennsylvania. “I see this as a bull market, but the data points haven’t turned entirely positive.”

The S&P 500 rallied 2.3 percent this week, extending a three-month rally that lifted the index by 39 percent. The gauge has advanced for the past three weeks as reports on home sales, durable goods orders and consumer confidence beat economists’ forecasts.

While the U.S. economy is showing signs of stabilizing from a recession that started in December 2007, it’s “way too early” to say the contraction is over, said Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, the group that officially makes the call.

The Fed reported that borrowing by U.S. consumers had the second-biggest drop on record, falling $15.7 billion to $2.52 trillion in April, as the jobless rate reached its highest in a quarter century and accessing loans remained difficult.

Boeing added 4.1 percent to $52.65. Bank of America boosted its share-price estimate and earnings projection for the second- biggest U.S. defense contractor because of “increased visibility” in the company’s production and delivery plans.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: June 5, 2009 16:46 EDT