Inflation data drag down stocks

Wall Street slumped Friday after another reading on inflation deflated hopes that the Federal Reserve would start moving toward an interest rate cut when it meets next week. The major indexes suffered moderate losses for the week.

The inflation reading was the second in two days that upended expectations that the Fed might consider lowering rates as the economy gives off signs of slowing. The sentiment overshadowed a stronger-than-expected increase in industrial production.

“The market is dealing with the softer economic data that we’re seeing and trying to reconcile that with the somewhat stiff inflation data,” said Marie Schofield, fixed-income strategist and portfolio manager at Columbia Management Group.

The Dow Jones industrial average fell 49.27 points, or 0.4%, to 12,110.41.

Broader stock indicators also slipped. The Standard & Poor’s 500 index fell 5.33 points, or 0.4%, to 1,386.95, and the Nasdaq composite index fell 6.04 points, or 0.3%, to 2,372.66.

Declining issues outpaced advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to a heavy 3.31 billion shares as options contracts expired, up from 2.73 billion Thursday.

For the week, the Dow fell 1.4%, the S&P; 500 tumbled 1.1% and Nasdaq fell 0.6%.

Bonds showed less movement than might be expected given inflation concerns as investors instead focused on a slide in stocks. The yield on the benchmark 10-year Treasury note rose to 4.55% from 4.54% on Thursday. The dollar was mixed against other major currencies, while gold prices rose.

Crude oil futures fell 44 cents to $57.11 on the New York Mercantile Exchange.

Inflation concerns remained entrenched on Wall Street on Friday. The Labor Department’s report that its consumer price index rose 0.4% in February renewed some of the concerns that dogged stocks in the previous day’s session. Wall Street had expected an increase of 0.3%. The rise was double that seen in January and the largest rise since a similar increase in December. Rising costs for gasoline, food and citrus crops helped boost prices.

The important core figure, however, which excludes often volatile food and energy prices, didn’t surprise Wall Street. It rose 0.2%.

The Federal Reserve reported industrial production increased 1% in February, well above the 0.3% increase analysts had expected.

The consumer inflation figures came one day after a key measure of inflation at the wholesale level took Wall Street by surprise with a higher-than-expected reading. Wall Street overcame the unwelcome producer price index reading Thursday to move moderately higher as it focused on further corporate takeover news.

The inflation readings draw Wall Street’s attention because investors are concerned that higher prices will make it harder for the Fed to justify a reduction in short-term interest rates, even if such a move could help stave off a further slowdown in the economy. The latest inflation readings carry particular significance as the Fed begins a two-day meeting Tuesday. The central bank has left interest rates unchanged at its last five meetings, interrupting a string of 17 straight increases that began in 2004.

Joe Balestrino, a portfolio manager at Federated Investors Inc., contends that investors are viewing economic data through the eyes of the Fed and not as much for what it says about the economy.

“The fundamentals don’t matter. What ultimately does matter is what the Fed is likely to do,” he said.

“It’s an emotional, sentiment-driven market. Anxiety is driving the market. It’s hard to come to any conclusion that the fundamental value of the market is changed from three to four weeks ago.”

Sentiment took a jarring nose dive Feb. 27 when a worldwide sell-off raced through the markets and sent the Dow down 416 points.

Since then Wall Street has been trying to regain its footing and ascertain whether stocks had found a new bottom.