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Stocks slide as Fed chief testifies about inflation
By Tim Paradis
Associated Press
NEW YORK » Stocks fell yesterday after Federal Reserve Chairman Ben Bernanke chided investors who may have looked past long-standing concerns about inflation.
The Dow Jones industrials fell nearly 100 points, the third straight session of declines.
A rise in oil prices to a six-month high and a weaker-than-expected rise in orders for large manufactured goods compounded investors' concerns Wednesday.
In Capitol Hill testimony, Bernanke said while core inflation slowed modestly in the second half of 2006, recent readings remain "uncomfortably high."
He also said troubles among some mortgage lenders that cater to those with poor credit don't appear to have spread to the broader economy, though he added the situation requires further observation.
Stocks rallied last week after investors interpreted language from the Fed as opening the way to the possibility of a reduction in interest rates. But concerns about stubborn inflation could reverse investors' hopes for a reduction in rates, even as the economy continues to cool.
"I think what the Fed is trying to tell us is that it is between a rock and a hard place. And when you're between and a rock and a hard place you just can't move," said Drew Matus, senior economist at Lehman Brothers Holdings Inc.
The Dow industrials fell 96.93, or 0.78 percent, to 12,300.36.
The Dow fell by as much as 140 points after the Fed released Bernanke's remarks for his testimony.
Broader stock indicators also pulled back. The Standard & Poor's 500 index fell 11.38, or 0.80 percent, to 1,417.23, and the Nasdaq composite index fell 20.33, or 0.83 percent, to 2,417.10.
The Russell 2000 index of smaller companies fell 4.96, or 0.62 percent, to 797.40.
Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 2.88 billion shares compared with 2.58 billion Tuesday.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.62 percent from 4.61 percent late Tuesday.
"It wasn't quite a perfect storm but you had enough winds buffeting the market around so it made it hard," Matus said of the combination of Bernanke's testimony as well as the reading on orders for durable goods and political tensions between Iran and the West.
The dollar was mixed against other major currencies, while gold prices rose.
Beyond concerns about inflation, economic data also weighed on stocks. Orders for durable goods increased 2.5 percent in February amid an increase in sales of commercial aircraft and autos after a 9.3 percent falloff in January. Wall Street had expected the U.S. Commerce Department report would show a 3.5 percent gain.
Oil prices spiked following rumors, which the U.S. military denied, that Iran had fired a missile at a U.S. ship in the Persian Gulf.
Also, weekly government inventory data showed a decline in stores of crude oil, gasoline and distillates.
Light, sweet crude rose $1.15 to settle at $64.08 per barrel yesterday, its highest level since Sept. 11, 2006.