Stock Rally Fizzles

A strong rally on Wall Street Monday fizzled under the weight of rising subprime mortgage losses at Bear Stearns hedge funds.

Also weighing on traders’ minds was a Federal Reserve meeting later this week. The Fed is expected to leave interest rates unchanged, and a drop in existing home sales today reinforced that view, but the Fed’s accompanying policy statement will be scrutinized for hints on the Fed’s next interest rate move.

Oracle will be the tech sector’s financial highlight this week, reporting its quarterly results late Tuesday. Analysts expect earnings of 35 cents a share on sales of $5.59 billion, up 16% from the year-ago quarter.

Apple’s new iPhone will also be in the spotlight. On Monday, the pending launch hurt shares of Palm and Research in Motion .

Alliance Fiber Optic Products and NetScout gained after raising guidance.

Dobson Communications rose on takeover speculation.

The Nasdaq lost 11 to 2577, the S&P 500 fell 5 to 1498, and the Dow slipped 8 to 13,352. Volume declined to 3.33 billion shares on the NYSE, and 2.11 billion on the Nasdaq. Declining issues led by a 22-10 margin on the NYSE, and 20-10 on the Nasdaq. Downside volume was 75% on the NYSE, and 70% on the Nasdaq. New highs-new lows were 66-111 on the NYSE, and 111-102 on the Nasdaq.