Stocks Mixed After Weak Economic Reports

AP
Wednesday February 20, 12:22 pm ET
By Tim Paradis, AP Business Writer
Stocks Turn Mixed As Investors Grow Uneasy About Rising Consumer Prices, Weak Housing Figures


NEW YORK (AP) -- Stocks were mixed Wednesday after a rise in consumer prices and lackluster readings on home construction touched off further worries about the health of the economy.
The uptick in consumer prices came a day after a record finish for oil and stirred concerns that the Federal Reserve will have less room to lower interest rates in the coming months. Lowering rates can increase inflationary pressures. Investors are hoping for some insights on the Fed's thinking with the expected release Wednesday afternoon of minutes from the last meeting of the central bank's rate-setting committee.

The Fed lowered key interest rates by a half-point to 3 percent on Jan. 30, following an emergency three-quarter point cut the prior week.

But rate cuts take months to work their way into the economy and the prospect of an economic boost later in the year did little to quiet investors' immediate concerns about the economy. The Labor Department reported a 0.4 percent increase in the consumer price index, and a 0.3 percent increase in the core consumer price index, which strips out often-volatile energy and food prices. The increases came in slightly higher than economists surveyed by Thomson Financial/IFR had anticipated.

"We've got a Fed that's doing almost everything in its tool kit to avoid getting into a recession, if we're not already in one. The elevation of inflation risk really complicates their assignment," said Jefferies & Co. market strategist Craig Peckham.

In midday trading, the Dow Jones industrial average was down 27.93, or 0.23 percent, at 12,309.29.

Broader stock indicators were mixed. The Standard & Poor's 500 index fell 1.63, or 0.12 percent, to 1,347.15, and the Nasdaq composite index rose 1.73, or 0.08 percent, to 2,307.93.

Bond prices slipped. The yield on the 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.87 percent late Tuesday. The dollar was higher against most major currencies, while gold prices fell.

Light, sweet crude oil on the New York Mercantile Exchange fell 41 cents to $99.60 a barrel. Oil closed above $100 for the first time Tuesday, derailing a stock market rally and renewing Wall Street's inflation concerns.

Investors are concerned that inflation could accelerate at the same time the economy suffers under tough credit conditions. The phenomenon of slowing growth and surging prices is known as stagflation.

Housing figures added to Wall Street's list of worries. The Commerce Department said housing starts rose by 0.8 percent in January, but only after plunging by a downwardly revised 14.8 percent in December. Building permits, a more forward-looking indicator, fell by 3 percent.

Peckham said that while the uptick in housing starts could indicate a bottom, investors can't be sure until they get further data, including figures on sales of new and existing homes due next week. He also noted that inventories remain at high levels, which is worrisome.

"Until the inventory issue gets addressed, it's going to be hard for starts to start moving higher," he said.

On Wednesday, the Financial Times reported that KKR Financial Holdings LLC, a listed affiliate of U.S. private equity group Kohlberg Kravis Roberts & Co., has delayed repayment of billions of dollars of commercial paper for the second time. Commercial paper are short-term bonds companies sell to quickly raise cash; demand for commercial paper began drying up last year, choking the credit markets.

KKR Financial fell 25 cents to $14.28.

While some banks have weathered the credit storm relatively unscathed -- Netherlands-based bank ING Groep NV reported an 18 percent gain in fourth-quarter net profit Wednesday -- most have seen significant losses. BNP Paribas SA confirmed that fourth-quarter net profit dropped 42 percent after its credit-related investments shed about 1.2 billion euros, or $1.76 billion, in value.

In other earnings news, Hewlett-Packard Co. late Tuesday posted a 38 percent surge in fiscal first-quarter profit thanks to an increase in computer sales. Hewlett-Packard shares rose $3.31, or 7.5 percent, to $47.26.

Drug maker Pfizer Inc. said it would buy biopharmaceutical company Encysive Pharmaceuticals Inc. for about $195 million to strengthen its portfolio in products treating high blood pressure. Encysive surged $1.20, or 111 percent, to $2.28, while Pfizer slipped 2 cents to $22.35.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 533.8 million shares.

The Russell 2000 index of smaller companies rose 0.60, or 0.09 percent, to 702.97.

Overseas, Japan's Nikkei stock average closed down 3.25 percent. In afternoon trading, Britain's FTSE 100 dropped 1.23 percent, Germany's DAX index lost 1.47 percent, and France's CAC-40 fell 1.49 percent.

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