Stocks Slide on Inflation Concerns

Inflation jitters triggered a new wave of selling on Wall Street on Wednesday, slamming the Dow Jones index to a 115-point loss and to the brink of falling below 10,000.

Strong earnings reports from the likes of Caterpillar, Intel and Yahoo sent the Dow up nearly 40 points early in the day. But the tide turned after the Federal Reserve cited concerns about rising energy prices in its so-called beige book report. That stoked fears that the central bankers might have to step up their “measured pace” of interest rate hikes.

“The market’s looking at the worst of everything right now and ignoring the positive side of the economic story,” said Dick Green, president of the financial website Briefing.com in Chicago.

The Dow Jones industrial average tumbled 115.05 points, or 1.1%, to 10,012.36 -- a new low for the year. The Dow last closed below 10,000 on Oct. 26.

The broader Standard & Poor’s 500 index lost 15.28 points, or 1.3%, to 1,137.50, and the technology-heavy Nasdaq composite index held up better, sliding 18.60 points, or 1%, to 1,913.76.

Falling stocks outnumbered gainers by 3 to 1 on the New York Stock Exchange and by 2 to 1 on Nasdaq.

Treasury yields dropped in late trading as investors piled into bonds. The yield on the benchmark 10-year T-note eased to 4.19% from 4.21% on Tuesday.

Adding to the market’s woes was a new report from the Labor Department showing that the core inflation rate, which excludes food and energy costs, climbed 0.4% last month. That’s double the level that economists had expected, and the fastest pace since August 2002.

Oil prices added to the dour mood on Wall Street, as futures rose 15 cents to $52.44 a barrel in New York trading after the Department of Energy reported a decrease in crude supplies.

Big-name U.S. companies, however, continued to offer mostly encouraging news on the profit front.

Heavy-equipment manufacturer Caterpillar surged $3.09 to $88.04 after topping quarterly earnings and revenue expectations.

Chip giant Intel rose 3 cents to $22.66 after its strong earnings report late Tuesday. And Web portal Yahoo rallied $1.43 to $34.65 after posting robust growth as well. Citing a healthy climate for online advertising, the company boosted its 2005 financial outlook.

For the S&P; 500 overall, strategists expect first-quarter earnings from continuing operations to rise 10% to 12% from a year earlier, which is strong by historical standards.

Even so, the brisk trading volume accompanying recent market sell-offs, including Friday’s 190-point drubbing in the Dow, could be ominous for the market in the near term, said Philip S. Dow, managing director of equity strategy at brokerage RBC Dain Rauscher in Minneapolis.

“The quarterly earnings and guidance from companies have been generally positive,” Dow said. “The thing I see that kind of concerns me is that trading volume has exploded.”

Market upswings, by contrast, such as Tuesday’s 56-point advance in the Dow industrials, have come on lighter trading days, indicating less conviction.

Analysts said weakness in so-called cyclical stocks such as home builders and retailers, which are especially sensitive to trends in the economy and consumer spending, could be a further worry.

“Wall Street may sense trouble for the economy in the second half of the year,” said Kevin Marder, chief market strategist at Ladenburg Thalmann Asset Management in Los Angeles.

Marder noted, for example, that the S&P; 500 retailing index of 30 stocks had slumped 62% year to date, and the Philadelphia housing index of 21 U.S. homebuilders was off 17%.

Both indexes were hit harder than the broad market during Wednesday’s slide, losing 1.7% and 2.4%, respectively.

In the retail sector, Staples sagged 61 cents to $18.64, and Dow component Home Depot dropped 86 cents to 35.60.

Among builders, Toll Bros. slid $3.19 to $72.31, KB Home sank $4.48 to $108.98, and Beazer Homes USA slumped $2.23 to $44.55.

In other highlights:

* IBM continued to be a drag on the Dow and the S&P; 500, dropping $3.47 to $72.01. Big Blue reported disappointing quarterly results last week, raising concerns about the environment for tech spending.

* Data storage leader EMC soared $1.54 to $13.01 after reporting a big jump in quarterly profit.

* Dow component Honeywell slid $1.07 to $35.43, even though the aerospace equipment maker beat first-quarter profit expectations and offered guidance in line with estimates for the current period.

* Exxon Mobil added to the downdraft for blue-chip indexes, slipping $1.49 to $57.14.

* Google climbed $6.70 to $198.10 after RBC Capital raised its rating on the stock to “outperform.” The search firm reports first-quarter earnings today.