Stocks fall after weak economic reports
Stocks fell early this morning as investors, already nervous about inflation given a return to record oil prices, pulled back after higher-than-expected upticks in consumer prices and unimpressive readings on home construction.
The Labor Department reported a 0.4 percent increase in the consumer price index, and a 0.3 percent increase in the core consumer price index, which strips out energy and food prices. Both jumps were slightly higher than economists surveyed by Thomson Financial/IFR anticipated, and raised concerns that the Federal Reserve might hesitate to lower rates again to lift the flagging economy.
Housing market data bolstered the argument that the economy is far from recovery. The Commerce Department said that in January, housing starts rose by 0.8 percent, but only after plunging by a downwardly revised 14.8 percent in December. Building permits, a more forward-looking indicator, fell by 3 percent.
Investors were also cautious ahead of the afternoon release of minutes from the Fed's last meeting. On Jan. 30, the central bank decided to lower key interest rates by a half-point to 3 percent, following an emergency three-quarter point cut the prior week.
In the first hour of trading, the Dow Jones industrial average fell 64.15, or 0.52 percent, to 12,273.07.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 7.11, or 0.53 percent, to 1,341.67, and the Nasdaq composite index fell 4.69, or 0.20 percent, to 2,301.51.
Bond prices fell. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.92 percent from 3.87 percent late Tuesday. The dollar was higher against most major currencies as gold prices fell.
As oil closed above $100 for the first time Tuesday, prompting stocks to give up sizable gains to finish mixed. On Wednesday, light, sweet crude oil on the New York Mercantile Exchange fell $1.28 to $98.73 a barrel.
Wall Street remains worried that inflation could accelerate at the same time the economy suffers under tough credit conditions. The phenomenon of slowing growth and surging prices is known as stagflation.
On Wednesday, the Financial Times reported that KKR Financial Holdings LLC, a listed affiliate of U.S. private equity group Kohlberg Kravis Roberts & Co., has delayed repayment of billions of dollars of commercial paper for the second time. Commercial paper are short-term bonds companies sell to quickly raise cash; demand for commercial paper began drying up last year, choking the credit markets.
KKR Financial fell 75 cents, or 5.2 percent, to $13.77.
While some banks have weathered the credit storm relatively unscathed -- Netherlands-based bank ING Groep NV reported an 18 percent gain in fourth-quarter net profit Wednesday -- most have seen significant losses. BNP Paribas SA confirmed that fourth-quarter net profit dropped 42 percent after its credit-related investments shed about 1.2 billion euros, or $1.76 billion, in value.
In other earnings news, Hewlett-Packard Co. late Tuesday posted a 38 percent surge in fiscal first-quarter profit thanks to an increase in computer sales. Hewlett-Packard shares rose $2.65, or 6 percent, to $46.60.
Meanwhile, a $20 billion deal to combine Delta Air Lines Inc. and Northwest Airlines Corp. is in danger, according to two people close to the discussions, because of an impasse among pilot negotiators over how to determine seniority for the 12,000 pilots involved. Delta fell 49 cents, or 2.3 percent, to $16.28, while Northwest declined 42 cents, or 2.5 percent, to $16.55.
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