Economic Worries Rile Wall St.

Wall Street lurched back into worry mode Monday as surging energy prices triggered fresh concerns about the economy.

Stocks ended broadly lower, gold jumped to a 17-year high and some nervous investors bought Treasury bonds, pushing longer-term interest rates down.

The markets’ moves could further complicate the Federal Reserve’s meeting today as policymakers gather to decide whether to continue raising short-term interest rates.

A key question for the Fed, analysts say, is whether higher energy costs already pose a significant threat to economic growth -- enough so that any additional credit tightening by the central bank in the near term could push the economy toward a recession.

At the same time, gold’s recent advance could be a signal of worsening inflation, which would argue for further Fed rate hikes. Historically, investors buy gold when they want to preserve their purchasing power in a time of rising consumer prices.

Last week, surveys of economists showed most were certain the Fed would raise its benchmark rate from 3.5% to 3.75% today, which would be the 11th such increase since June 2004.

But with another potential hurricane bearing down on the Gulf of Mexico, the message from the stock market Monday was one of concern about consumers’ spending power if energy prices leap anew.

Shares of General Motors, for example, fell $1.17 to $31.31, the lowest closing price since early June. Retailer Target dropped $1.07 to $52.23, its weakest close since late May.

The Dow Jones industrial average slid 84.31 points, or 0.8%, to 10,557.63. Losers outnumbered winners by 2 to 1 on the New York Stock Exchange and on Nasdaq.

While most stocks fell, gold prices zoomed. Near-term gold futures in New York jumped $7.20 to $466.70 an ounce, the highest since 1988; the price has soared nearly $33 an ounce, or 7.6%, since the end of August.

Bill Strazzullo, chief trading strategist at money manager State Street Corp. in Boston, said many investors who were flocking to gold were betting that high energy costs, increasing prices of other commodities and ballooning federal spending to rebuild after Hurricane Katrina “all will end in higher inflation down the road.”

For the Fed, therefore, gold’s strength is a reason to continue raising short-term interest rates even in the face of a softer economy, analysts say, because the central bank’s primary mission is to keep inflation under control.

“With inflation fears mounting as energy prices soar ... Fed officials surely are not about to suggest that they have raised rates far enough,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. He expects a quarter-point rate increase today.

Not everyone is convinced that gold is a good indicator of inflation’s trend, however. Some experts see the metal as just the latest hot market for hedge funds and other short-term traders to play.

Another barometer of investors’ inflation expectations -- the Treasury bond market -- has been sending mixed signals.

Longer-term Treasury yields, or rates, plunged after Hurricane Katrina hit the Gulf Coast on Aug. 29, as some investors bet that the economy would slow and the Fed would temporarily halt its credit-tightening campaign.

Yields have rebounded over the last two weeks as oil prices pulled back, but they’re still below their levels of mid-August. They slipped modestly Monday.

The 10-year T-note ended at 4.24%, down from 4.27% on Friday. The two-year T-note ended at 3.92%, down from 3.97% on Friday; the two-year note hit a four-year high of 4.15% on Aug. 8.

If bond investors were as fearful as some gold buyers that inflation could rise significantly in 2006, Treasury yields would be well above current levels, many economists say.

Jay Mueller, senior portfolio manager at Wells Capital Management in Menomonee Falls, Wis., said the bond market was “still sorting out which is the more powerful of two forces” -- the drag on the economy from higher energy prices or the inflationary effect of energy.

The stock market also has been in a holding pattern: Despite Monday’s slide, the market is higher now than it was before Katrina hit. Although investors have been shying away from consumer-related stocks, they have been buying shares of other companies that could benefit from post-Katrina construction.

The Standard & Poor’s 500 index lost 6.89 points, or 0.6%, to 1,231.02 on Monday, extending losses that took it down 0.3% last week. But the S&P; is up 2.2% since Aug. 26, the last trading day before Katrina hit.

The tech-heavy Nasdaq composite fell 15.09 points, or 0.7%, to 2,145.26 on Monday; it’s up 1.2% since Aug. 26.

Among Monday’s highlights:

* Consumer-related issues losing ground included Sears Holding, down $4.26 to $119.97; toymaker Hasbro, down 53 cents to $21.27, and restaurant chain P.F. Chang’s, down $1.27 to $48.49.

But Nike soared $4.99 to $83.45 after the apparel maker reported quarterly earnings that beat Wall Street’s forecasts.

* Energy stocks roared again with oil and natural gas prices. Valero Energy surged $3.22 to $111.27, Sunoco gained $2.70 to $76.23 and Apache jumped $3.18 to $76.60.

Among other commodity issues, copper miner Phelps Dodge rose $3.61 to a record $116.61. Iron ore miner Cleveland-Cliffs added $1.40 to $84.39.

But gold mining stocks were mostly lower after zooming last week. Goldcorp fell 32 cents to $20.11; Glamis Gold was off 51 cents to $21.66.

* Airlines fell on renewed worries about fuel costs. Continental tumbled 74 cents to $10.98 and JetBlue lost 43 cents to $18.67.