Stock Sell-Off Continues

Selling intensified on Wall Street on Wednesday, leaving stocks broadly lower and pushing long-term Treasury bond yields to their highest levels since spring.

Smaller stocks, which had been the market’s leaders for much of this year, were hammered for a third straight session, leaving the Russell 2,000 index of smaller issues down nearly 10% from its summer peak.

The market’s latest slide was blamed in part on disappointing third-quarter results from Apple Computer and from chip maker Advanced Micro Devices.

But many analysts say the main issue driving shares lower in recent weeks has been concern over inflation and how high the Federal Reserve might raise short-term interest rates to damp price pressures.

“There’s been nothing to trigger the kind of sell-off we’ve seen [Tuesday] and [Wednesday],” said Brian Bush, an analyst at brokerage Stephens Inc. “I don’t see a logical explanation, other than just pure nervous speculation and fear.”

In an increasingly common pattern, stocks opened higher Wednesday, then sellers quickly took control.

The Dow Jones industrial average ended with a minor loss, off 36.26 points, or 0.4%, to a five-month low of 10,216.91. But the wider market fared worse, indicating that investors were dumping a broad cross section of stocks from their portfolios.

Losers outnumbered winners by nearly 4 to 1 on the New York Stock Exchange and by 3 to 1 on Nasdaq, in heavy trading.

The Standard & Poor’s 500 index fell 7.19 points, or 0.6%, to a five-month low of 1,177.68.

The technology-dominated Nasdaq composite slid 23.62 points, or 1.2%, to a three-month low of 2,037.47.

The Russell 2,000 dropped 8.51 points, or 1.4%, to 621.57, also a three-month low.

In a speech Wednesday, Federal Reserve Chairman Alan Greenspan said the economy was weathering the recent jump in energy prices without major disruptions. But his optimism triggered renewed selling in the bond market, on the assumption that the Fed would continue to tighten credit.

The 10-year T-note yield, a benchmark for mortgage rates, jumped to 4.45%, its highest since April and up from 4.39% on Tuesday.

Bonds sold off even though the government got a good reception for its auction of new five-year notes. The yield on the notes was 4.27%.

Another rise in energy prices may have exacerbated worries about inflation. Near-term crude oil futures in New York climbed 59 cents to $64.12 a barrel. Crude had fallen to a two-month low of $61.36 last week.

“A lot of people who were hoping that when it broke $62 a barrel it would go back to the $50s are seeing that’s not happening,” said Hank Herrmann of money manager Waddell & Reed.

Friday will bring fresh data on inflation, when the government reports on the consumer price index for September.

So far, the stock market’s decline is a garden-variety correction, meaning a pullback of 5% to 15% from recent highs.

The S&P; 500 is down 5.4% from its four-year high reached Aug. 3. The Russell 2,000 is down 9.7% from its record high reached Aug. 2.

Among the day’s market highlights:

* Apple beat Wall Street profit forecasts by a penny a share, but revenue came in below forecasts and iPod sales missed expectations by a wide margin. Investors worried that the company’s holiday sales might also disappoint. Apple tumbled $2.34 to $49.25, although it pulled up from a low of $47.87.

* Advanced Micro Devices plunged $3 to $21 even though it also beat earnings estimates. Some analysts cited concerns about profit margins.

Rival Intel fell 18 cents to $23.24, the lowest since April, after Prudential Equity cut the stock to “underweight” from “neutral,” citing margin worries.

* Rising interest rates triggered another sell-off in shares of mortgage lenders. IndyMac Bank fell $1.24 to $34.90, Downey Financial slid $1.29 to $55.71 and Countrywide Financial lost 52 cents to $30.10.

* Major retail stocks fell 1.1%, on average, as oil prices fanned worries that fuel costs may crimp consumer spending. Kohl’s lost 51 cents to $46.08. TJX, owner of the T.J. Maxx and Marshalls stores, slid 74 cents to $20.89. Goldman Sachs analysts wrote in a note to clients that they expected “widespread risk to [profit] estimates” for retailers because of energy costs.

* Drug stocks attracted buyers. Pfizer added 54 cents to $25.84; Schering-Plough was up 78 cents to $20.62.

* Harley-Davidson said strong worldwide shipments led to a 16% rise in quarterly profit that beat Wall Street estimates by 6 cents a share. The stock rose $1.30 to $46.90.