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Stocks slip amid weak economic data

From the Associated Press

Wall Street pulled back in light trading Thursday after economic data pointing to weakness in regional manufacturing and a slowing U.S. economy weighed on investor sentiment.

Stocks fell after the Federal Reserve Bank of Philadelphia’s business index, which gauges regional manufacturing activity, came in this month at minus 4.3 compared with a positive reading of 5.1 in November. It was the weakest showing since 2003.

Before the release of the Philadelphia Fed report, investors shrugged off news that the U.S. economy grew at a slower pace in the third quarter than had been estimated. The Commerce Department said the gross domestic product grew at a 2% rate in the third quarter amid a cooling real estate market; a month ago the agency had estimated growth in the quarter at 2.2%.

Ryan Larson, senior equity trader at Voyageur Asset Management, a unit of RBC Dain Rauscher, played down Thursday’s drop in stock prices, citing the session’s low volume.

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“Nobody is really around to trade the stuff,” he said. “So I wouldn’t put too much credence in this pullback.”

The Dow Jones industrial average fell 42.62 points, or 0.3%, to 12,421.25.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index slipped 5.23 points, or 0.4%, to 1,418.30 and the Nasdaq composite index lost 11.76 points, or 0.5%, to 2,415.85.

The Russell 2,000 index of smaller companies fell 2.66, or 0.3%, to 782.90.

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Raw-material stocks, hurt by declining prices of metal and copper, were among the laggards Thursday. Alcoa was the weakest of the 30 stocks that make up the Dow, falling 74 cents, or 2.5%, to $29.30.

The weak economic data sent bond yields sharply lower, with the yield on the benchmark 10-year Treasury note falling to 4.55% from 4.6% on Wednesday.

Crude oil futures fell $1.06 to $62.66 a barrel in New York.

Comments by Richmond Federal Reserve Bank President Jeffrey M. Lacker, who has long warned of the threat of inflation to the economy, also hurt the market’s sentiment Thursday. According to his prepared remarks, Lacker, speaking in Charlotte, N.C., said, “The risk that core inflation surges again, or does not subside as desired, clearly remains the predominant macroeconomic policy risk.”

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Voyageur’s Larson said the comments weren’t surprising, given that Lacker had dissented in the central bank’s recent decisions to leave short-term interest rates unchanged.

The Fed hasn’t touched rates in its last four meetings after raising rates 17 straight times since 2004 in an attempt to cool the economy and curb inflation. Wall Street has been waiting to see whether the central bank can steer the economy toward a “soft landing” or whether growth will slow too quickly and push the economy into recession.

Drawing less attention than other economic data out Thursday, a gauge of future economic activity advanced 0.1% in November, suggesting that the U.S. economy will expand modestly in coming months.

The Conference Board said its index of leading economic indicators edged up to 138.2 last month after a revised increase of 0.1% to 138.1 in October.

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In other market highlights:

* Profit reports from drugstore chain Rite Aid and packaged-food maker ConAgra Foods lent support to a belief that companies would still squeeze out growth amid a slowing economy.

Rite Aid rose 10 cents to $5.47 after reporting a narrower fiscal third-quarter loss amid stronger pharmacy sales.

ConAgra rose 49 cents to $27.34 after its fiscal second-quarter profit rose 44%. The company, whose brands include Healthy Choice, raised its forecast for the year.

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* Horizon Health rose $3.23, or 20%, to $19.36 after the company, which operates mental health treatment facilities, agreed to be acquired by Psychiatric Solutions for $321 million plus the assumption of $105 million in debt.

Psychiatric Solutions rose $1.52, or 4.2%, to $37.60.

* Jabil Circuit dropped $2.44 to $24.12. The 9.2% drop was the biggest in the S&P; 500. The maker of electronics for other companies, including Nokia cellphones, said revenue this quarter might reach $2.85 billion, less than the $2.89-billion average of analyst estimates compiled by Bloomberg.

* PMC-Sierra, which makes chips used in communications and networking equipment, fell 29 cents, or 4.2%, to $6.60 after cutting its fourth-quarter profit forecast.

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* Financial service company International Assets Holding fell $15.63, or 33%, to $32.30 after it swung to a fiscal fourth-quarter loss amid volatility in commodity prices.

* AT&T; paced a rally for telephone shares. The phone company began offering “U-verse” digital television and high-speed Internet access service in the San Francisco Bay Area and Silicon Valley, expanding cable-TV competition there. Its shares gained 22 cents to $35.17.

BellSouth, which AT&T; is set to buy if it gets clearance from regulators, gained 59 cents to $46.14.

* General Mills, the second-largest U.S. cereal maker, climbed 96 cents to $58.95 after posting second-quarter earnings per share of $1.08, beating the average estimate of $1.03 in a Bloomberg survey.

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Bloomberg News was used in compiling this report.


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