WALL STREET

U.S. STOCKS DROP A 2ND DAY, SENDING DOW AVERAGE BELOW 11,000 The Dow Jones Industrial Average fell below 11,000 for the first time since March on speculation the Federal Reserve will keep raising interest rates to curb inflation even as economic growth slows.

American stocks fell for a second day following comments by Fed Chairman Ben Bernanke that inflation is “unwelcome.” Fed officials reaffirmed that concern yesterday. Homebuilders, among companies most sensitive to increases in borrowing costs, slid to their lowest levels since October 2004 as Wachovia Securities downgraded D.R. Horton Incorporated and three rivals.

The Standard & Poor’s 500 Index fell 5.56, or 0.4%, to 1259.73 at 1:51 a.m. in New York. The Dow average lost 86.91, or 0.8%, to 10,961.81.The Nasdaq Composite Index dropped 14.14, or 0.7%, to 2155.48.

– Bloomberg News

IN THE COURTS

SETTLEMENT IN CIVIL FRAUD CASE AGAINST MONEY MANAGER GABELLI The Department of Justice has agreed to settle a civil fraud lawsuit accusing prominent money manager Mario Gabelli in a scheme to gain unfair advantage in cell phone spectrum auctions, a government spokeswoman said yesterday.

The deal, announced at a hearing in U.S. District Court, would include a $100 million payment from Gabelli to the government, The Wall Street Journal reported on its Web site, citing people briefed on the negotiations.

No information about the terms of the settlement were immediately announced, though they may be released at a hearing June 29, said the spokeswoman, Heather Tasker

– Associated Press

LAWMAKERS CRITICIZE FORMER FANNIE MAE CEO WASHINGTON – The ousted former chief executive of Fannie Mae, Franklin Raines, was criticized by lawmakers and a federal regulator yesterday as a House panel aired government allegations of a six-year accounting fraud at the mortgage giant.

The regulator who oversees Fannie Mae blamed Mr. Raines and other senior company officials for the massive accounting failures and alleged manipulations designed to enrich executives. And the chairman of the subcommittee holding yesterday’s hearing, Rep. Richard Baker, a Republican of Louisiana, contended that Mr. Raines probably lied to Congress when he testified about the debacle in October 2004.

– Associated Press

AIRLINES

NORTHWEST FLIGHT ATTENDANTS REJECT CUTS MINNEAPOLIS – Northwest Airlines Corporation flight attendants rejected a pay cut package yesterday, setting up a possible showdown with the nation’s fifth-largest carrier.

The Professional Flight Attendants Association said 80% of its members voted against the deal. Soon after, Northwest said in a bankruptcy court filing that it would move “soon” to impose its terms on flight attendants with or without the judge’s permission. The union has not disputed Northwest’s legal right to do that.

– Associated Press