Economic concerns prompt stock drop

NEW YORK » Wall Street posted a moderate decline yesterday, giving back part of the previous session's gains as investors once again fretted about interest rates and the economy.

A slight rise in weekly unemployment claims met expectations of a weakening job market, but a greater-than-forecast drop in the Conference Board's index of leading indicators stoked concerns about a dropoff in economic growth. Meanwhile, higher oil prices and rising bond yields also weighed on Wall Street's mood.

The market continued its familiar pattern of up-and-down trading ahead of the Federal Reserve's policy meeting next Wednesday and Thursday. Stocks have steadied somewhat after a six-week freefall on worries that escalating core prices could prompt the Fed to keep boosting rates, but the risk of an economic downturn has kept the market from making substantial gains.

Although investors are certain the Fed will hike interest rates again, they have been nervous about the central bank's opinion of inflation and unwilling to place bets while the outlook remained murky.

"The base-building process is going to take a couple months to complete," said Steven Goldman, chief market strategist for Weeden & Co. "We're going to see pockets of strength, pullbacks, rallies. We're hopefully looking for a bottom from which to build a rally later this year."

At the close, the Dow Jones industrial average sank 60.35, or 0.54 percent, to 11,019.11, after tumbling as much as 93 points earlier in the session. The Dow gained almost 105 points Wednesday.

Broader stock indicators also were lower. The Standard & Poor's 500 index slid 6.60, or 0.53 percent, to 1,245.60, and the Nasdaq composite index lost 18.22, or 0.85 percent, to 2,122.98.

Bond yields remained inverted as prices dropped. The yield on the 10-year Treasury note climbed to 5.21 percent from 5.16 percent late Wednesday, while the 2-year yield rose to 5.24 percent. Higher short-term yields over long-term yields is seen as a signal of investor pessimism.

Elsewhere, the U.S. dollar surged against the Japanese yen and was flat versus European currencies. Gold prices were lower at about $582 per ounce.

Strong manufacturing and export data catapulted Japan's Nikkei stock average 3.36 percent, its biggest one-day gain in six months.

With few economic reports to guide investors, stocks have drifted this week amid persistent fears that rising inflation could prompt the Fed to keep hiking rates despite a slowing economy. Yesterday's retreat erased more than half of Wednesday's advance.