Wall Street sinks on inflation data
NEW YORK » Wall Street fell sharply for a second straight session yesterday after a hefty jump in wholesale inflation and a drop in new home construction gave investors more reason to believe an economic recovery is far off. The Dow Jones industrial average dropped 130 points.
The U.S. Labor Department said its Producer Price Index rose by 1.2 percent in July, more than double the expected rate, and lifting the current annual rate to the loftiest level in 27 years.
Even after stripping out food and energy, core prices rose by a higher-than-expected 0.7 percent, the biggest increase since November 2006.
Oil's retreat over the past month had given the stock market a brief rally. But aside from August's commodities drop, there have been few bright spots on Wall Street this summer; the banks are forecasting more losses, the credit markets are still tight, the housing market remains in a slump and the economy continues to lose jobs -- all of which gives investors little reason to buy stocks.
The U.S. Commerce Department added to the heap of downbeat news yesterday, reporting that July housing starts fell to an annual rate of 965,000 units -- higher than analysts predicted, but the lowest level in more than 17 years nonetheless.
And the financial sector took another hit after a JPMorgan Chase & Co. analyst estimated that Lehman Brothers Holdings Inc. will have to write down its investments during the third quarter by $4 billion, and a Goldman Sachs analyst advised against buying the stock of American International Group Inc.
The Dow fell 130.84, or 1.14 percent, to 11,348.55, after losing 180 points on Monday. It was the worst two-day performance for the blue-chip index since late June.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 11.90, or 0.93 percent, to 1,266.70, and the Nasdaq composite index fell 32.62, or 1.35 percent, to 2,384.36.
Declining issues outnumbered advancers by about 11 to 4 on the New York Stock Exchange, where consolidated volume came to a light 4.07 billion shares, up from 3.75 billion Monday.
The Russell 2000 index of smaller companies fell 11.94, or 1.61 percent, to 730.03.
Bond prices were mixed. While investors often seek the shelter of government debt when bad news arrives, inflation is a deterrant because it devalues the debt's fixed returns. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.84 percent from 3.82 percent late Monday.
The dollar fell against other major currencies, driving up oil. Gold prices also turned higher.
Crude rebounded yesterday by $1.66 to $114.53 a barrel on the New York Mercantile Exchange.
Lehman fell $1.96, or 13 percent, to $13.07.
AIG shares fell $1.28, or 5.9 percent, to $20.32.