Stocks decline after Bernanke remarks

NEW YORK » Wall Street retreated yesterday after Federal Reserve Chairman Ben Bernanke predicted a "sluggish" economy until later in the year and more mortgage-related losses at banks.

Though the Fed chairman's comments suggested the central bank is still open to further interest rate reductions, the tone was, as expected, somber.

Bernanke said the housing and credit crises have weighed on the economy and curbed hiring. If the job market deteriorates, consumer spending, which is crucial for economic growth, will keep dwindling.

The U.S. Labor Department said yesterday the number of workers filing unemployment claims fell 9,000 to 348,000 last week.

But after the January jobs report that showed the first net jobs loss in more than four years, Wall Street remains worried that businesses are becoming cautious about hiring and that unemployment will compound the debt problems that have been slamming the markets and the overall economy.

After this week's better-than-expected report on January retail sales, investors found Bernanke's assessment of the economy particularly disheartening.

"He was more bearish on the economy than he was before," said Arthur Hogan, chief market analyst at Jefferies & Co. "To have the Fed come in and talk about how things could be getting worse, not better, kind of takes the wind out of their sails."

The Dow fell 175.26, or 1.40 percent, to 12,376.98, after gaining 370 points, total, in the previous three sessions.

Broader stock indicators also declined.

The Standard & Poor's 500 index fell 18.35, or 1.34 percent, to 1,348.86, and the Nasdaq composite index fell 41.39, or 1.74 percent, to 2,332.54.

The Russell 2000 index of smaller companies fell 16.61, or 2.30 percent, to 705.32.

Declining issues outnumbered advancers by nearly 4 to 1 on the New York Stock Exchange. Consolidated volume came to 3.49 billion shares, down from 3.64 billion shares Wednesday.

Government bond prices dropped, pushing up the yield on the benchmark 10-year Treasury note, which moves opposite its price, to 3.82 percent from 3.73 percent late Wednesday.

Bond investors were focusing on yesterday's upbeat jobless claims data, as well as Bernanke's indication that the Fed may be nearing the end of its rate-cutting campaign if it expects the economy to regain momentum later in the year, said Joe Balestrino, a portfolio manager at Federated Investors Inc.

The government reported yesterday that the nation's trade deficit, which had ballooned to record levels for five straight years, finally narrowed in 2007.

In December, the deficit dropped 6.9 percent to $58.8 billion, thanks largely to strong increases in U.S. exports.

High oil prices, however, are keeping the deficit from narrowing further.

Yesterday, light, sweet crude oil rose $2.19 to $95.46 per barrel on the New York Mercantile Exchange.