Interest-rate concerns send markets lower

Wall Street stumbled Wednesday, ending an eight-session winning streak for the Dow index, after minutes from the Federal Reserve’s most recent meeting indicated the central bank hasn’t ruled out tightening credit further to curb inflation.

Already facing the prospect of a sharp slowdown in corporate earnings growth, investors now are losing hope that the central bank could ride to the rescue with lower interest rates.

That gave sellers the upper hand Wednesday, and they drove the Dow Jones industrials down 89.23 points, or 0.7%, to 12,484.62. The Dow had been down as much as 118 points before rebounding.

In the broader market, losers topped winners by 2 to 1 on the New York Stock Exchange.

The NYSE composite index, which hit a record high Tuesday, lost 0.6% to 9,413.63.

The minutes from the March 20-21 meeting of the Fed’s policymaking Federal Open Market Committee, released Wednesday, said that all members agreed that the “predominant policy concern” was the risk that inflation would fail to moderate.

That raised the prospect of the Fed boosting short-term rates further, and certainly dimmed any expectations of a near-term drop in rates.

“The bottom line is that the Fed is going to watch inflation,” said Jim Bianco, head of research at Bianco Research in Chicago.

Richmond Fed President Jeffrey Lacker said Wednesday in a speech in Charlotte, N.C., that the rate of inflation, which has registered 2.3% over the last 12 months by one measure, was “uncomfortably high.”

The Fed’s focus on inflation could be hard for investors to swallow in coming weeks if first-quarter corporate earnings reports are as weak as analysts now expect, reflecting the slower economy.

Standard & Poor’s on Wednesday reduced its estimate for first-quarter growth in operating earnings for the S&P; 500 companies. S&P; said its analysts expected a 3.2% rise in earnings compared with the first quarter of 2006, down from the 5% increase they had predicted less than two weeks ago.

As earnings are reported, “There’s probably going to be concern around the economy being too soft,” said Christopher Sheldon, who helps manage $95 billion at Mellon Private Wealth Management in Boston.

The S&P; 500 index lost 9.52 points, or 0.7%, to 1,483.87. The technology-dominated Nasdaq composite index fell 18.30 points, or 0.7%, to 2,459.31.

Stocks have recovered sharply in recent weeks, after tumbling in late February and early March on fears that the housing market’s slump could drag the economy overall into recession.

The Fed’s stance may challenge market bulls’ ability to stay in control.

Among Wednesday’s market highlights:

* Housing and financial services shares helped lead the market lower. The National Assn. of Realtors reduced its 2007 forecasts for sales of new and existing homes.

An S&P; index of 15 home-building stocks fell 1.9% to 556.34. Among lenders, Countrywide Financial lost 30 cents to $33.40, Downey Financial dropped 72 cents to $61.85 and Wells Fargo slipped 24 cents to $34.17.

Among brokerages, Merrill Lynch was off 78 cents to $85.89.

* Citigroup sank 60 cents to $51.80 after saying it would eliminate about 17,000 jobs. Although the company had been under pressure to reduce costs, the staff cuts were smaller than some investors had hoped.

* In the retail sector, Tractor Supply jumped $5.19 to $56.30 after boosting its 2007 earnings estimate.

But Men’s Wearhouse, which eased 35 cents to $46.83 in regular trading, sank to $44 in late trading after the company warned that first-quarter earnings would be at the low end of estimates because of “softening U.S. sales.”

* Alcoa added 18 cents to $35.08 after rising as high as $35.76. The aluminum giant late Tuesday said first-quarter earnings were up 9%, beating expectations.

* Treasury bond yields were little changed. The 10-year T-note yield inched up to 4.73% from 4.72% on Tuesday.