New York – Inflation fears pushed stocks modestly lower Tuesday as a surge in wholesale prices obscured data showing signs of a moderating economic growth.
While the Labor Department’s producer price index showed that high energy costs have not yet affected core wholesale prices – without food and energy – a stronger-than-forecast jump in overall PPI compounded concerns that soaring oil prices will inevitably drive other prices higher.
A drop in new-home construction fed hopes that economic growth is tapering and could bring an end to the Federal Reserve’s campaign to boost interest rates and contain inflation. But a strong reading on industrial activity and a fresh rise in crude oil nonetheless kept investors on edge.
“When you add up all the numbers, the economy is doing well, but there’s still a hint of inflation around,” said Larry Wachtel, a market analyst for Wachovia Securities. “I can’t really say anything today would persuade the Fed to stop raising rates in June.”
The mixed economic numbers muddled the outlook for interest rates and countered excitement over solid earnings from Wal-Mart Stores Inc. and a rebound in bonds. Investors were already looking ahead to today’s report on consumer prices for more clarity about the inflation picture.
At the close of trading, the Dow Jones industrial average lost 8.88, or 0.08 percent, to 11,419.89. Broader stock indicators also declined. The Standard & Poor’s 500 index dropped 2.42, or 0.19 percent, to 1,292.08, and the Nasdaq composite index fell 9.39, or 0.42 percent, to 2,229.13.
Bonds continued their recovery from recent lows, with the yield on the 10-year Treasury note dropping to 5.1 percent from 5.16 percent late Monday. The 10-year Treasury yield reached 5.19 percent on Friday, the highest level since May 2002.
The U.S. dollar lost ground to the Japanese yen and was little changed against European currencies. Gold bounced back after falling sharply to $685 an ounce.
